BANGOR – One of the three creditors attempting to force Bangor and Aroostook Railroad System into bankruptcy protection has asked a federal judge to oversee all sales or leases of the railroad’s operations.
The emergency motion, filed Tuesday in U.S. Bankruptcy Court in Portland, is unusual because a judge doesn’t normally begin to scrutinize – and approve or reject – every financial transaction of a company until after it is in Chapter 7 or Chapter 11 bankruptcy.
An official with the B&A Railroad System acknowledged Wednesday that he is negotiating to sell pieces of the system to different companies.
Helm Financial Group of San Francisco, which claims it is owed more than $5.7 million by B&A, wants U.S. Bankruptcy Court Judge James B. Haines Jr. to keep tabs on any sales transactions to make sure creditors are going to get what’s owed them from the deals.
“We’re asking the judge to prohibit any sale of assets outside of any ordinary course of business,” said Curtis Kimball, Helm’s attorney in Bangor. “We thought it was necessary to file that action to protect creditors and employees.”
B&A President Frederic W. Yocum Jr. on Wednesday said the company would object to Helm’s court request in the next couple of days.
“We don’t see that it’s warranted or necessary,” Yocum said.
Companies can file for relief from a Bankruptcy Court judge in two ways. One is Chapter 7, under which a business ceases operations. The other is Chapter 11, under which a company seeks time to reorganize its finances or find a buyer while the creditors are kept at bay.
Right now, B&A isn’t under either chapter.
If it were, a Bankruptcy Court judge would watch B&A’s transactions to ensure that the needs of creditors and employees are met. Because it is a railroad, the judge also would have to determine what is in the best interest of the public. The railroad, in the meantime, would be allowed to continue operating.
Although the railroad has not filed for bankruptcy, Helm and two other companies are seeking to put B&A into bankruptcy protection by asking a judge to do it for them.
Last week, Helm, along with Union Tank Co. of Chicago and Ebenezer Railcar of West Seneca, N.Y., asked the Bankruptcy Court judge to place B&A under Chapter 11 protection. All have leased B&A locomotives or rail cars. Combined, Union Tank and Ebenezer are owed almost $2 million.
Late last year, Maine District Court ordered B&A to return more than 25 locomotives and rail cars to Helm because the railroad was delinquent in lease payments. Those cars were returned earlier this year.
B&A’s parent company, Iron Road Railways of Virginia, is trying to sell the Bangor and Aroostook Railroad System. Besides B&A, the system includes Canadian American, Quebec Southern and Northern Vermont railroads, as well as Logistics Management Systems.
A sale of B&A is imminent, with details being finalized among the interested parties, Yocum said Wednesday. It is unlikely that the system will be sold as a whole to just one entity.
“Probably what will happen will be for major parts of it, but not all of it, to be sold,” Yocum said.
In the last couple of months, B&A said that Rail World Inc., Wheeling Corp., and several independent investors, as part of a rail management and investment consortium, were negotiating to buy the B&A Railroad System.
As of February, B&A had assets of $92.8 million and debts of about $50.4 million, according to documents filed then in Maine Superior Court. B&A Vice President Karl Ziebarth, in an affidavit, stated that the assets include lines, rights of way, acreage for yards, station and shop grounds, numerous buildings, including the Derby station in Milo, materials inventories, and recurring income from rentals and leases.
In the same court documents filed in February, weekly income for B&A and sister company Canadian American Railroad was approximately $700,000 to $900,000, said Richard Rushmore, vice president of finance and administration.