Montreal Maine Trustee Says Victims Reorganization Plan Not Serious

The Montreal Maine & Atlantic Railway Ltd. reorganization proposal filed by families of the 47 people who died when one of the railroad’s cars derailed and exploded is “not a serious plan,” according to Robert J. Keach, the Chapter 11 trustee.

The plan, filed on Jan. 29 in U.S. Bankruptcy Court in Bangor, Maine, is “facially non-confirmable” and “will go nowhere,” Keach said in an e-mail. The victims’ explanatory disclosure statement is set to go before a judge for approval on March 12.

Submitted by an ad hoc group of wrongful-death claimants, the plan would give 75 percent of the $25 million in available insurance to the families of those who died after an unattended train derailed in Lac-Megantic, Quebec, in July. The other 25 percent would be earmarked for claimants seeking compensation for property that was damaged when much of the town burned.

“Mr. Keach has unfortunately embarked on a war against the wrongful-death claimants,” said Daniel C. Cohn, of Murtha Cullina LLP in Boston, who represents the claimants.

Former U.S. Senator George J. Mitchell, a Maine Democrat, would be the plan administrator. Cohn said the plan “was vetted not only within our group but also with Senator Mitchell’s office.”

The proposal is “just a publicity stunt,” Luc Despins of Paul Hastings LLP in New York, a lawyer for the official victims’ committee, said in an interview. Despins said the lawyers who wrote the plan have agreements giving them 40 percent of client recoveries.

Cohn declined to confirm whether he has such contingency agreements.

Keach said the plan is founded on an “unsupportable assumption” that insurance proceeds, “a distinctly Canadian asset,” could be transferred to the U.S.

Despins called it “naive in the extreme” to believe the Canadian insurance policy would be turned over to the U.S. court without agreement between the courts in both countries.

Keach said the plan was filed “solely for tactical reasons” by the same lawyers resisting his request to move wrongful-death lawsuits from federal court in Illinois to Maine. There’s a hearing set for today on that effort.

The plan would be “a very bad deal for the vast majority of claims,” Keach said. If it went through, it would take money from other victims “to give it to the proponents and to pay contingent fees,” he said.

Keach called the plan proponents a “splinter group” who refused to participate in Despins’s official committee, appointed by the court to represent all victims of the disaster.

Cohn called the 75-25 split a “compromise” and said every aspect of the plan is subject to negotiation. For details, click here for the Jan. 30 Bloomberg bankruptcy report.

Keach last week got court approval to sell the railroad for $14.3 million, which the ad hoc group said isn’t enough to cover $40 million in secured claims. The group said insurance policies aren’t part of the lenders’ collateral.

MM&A filed for bankruptcy in Canada and the U.S. in August. The Hermon, Maine-based railroad operates 510 route-miles (820 kilometers) in Maine, Vermont and Quebec. It listed assets of $46.1 million and liabilities totaling $54.4 million, including $38.4 million in secured claims. The railroad didn’t estimate injury, death and damage claims.

In addition to $28 million owing to the U.S. Federal Railroad Administration, it owes Wheeling & Lake Erie Railway Co. $6 million, secured by accounts receivable. Trade suppliers are owed $3.5 million, according to a court filing.

The case is In re Montreal Maine & Atlantic Railway Ltd., 13-bk-10670, U.S. Bankruptcy Court, District of Maine (Bangor).