Canadian Tobacco Seller Files Bankruptcy in U.S.

Imperial Tobacco is using Chapter 15 to protect tobacco stored in U.S. warehouses after losing an appeal of a Canadian court judgment.
Matthew HellerMarch 15, 2019
Canadian Tobacco Seller Files Bankruptcy in U.S.

British American Tobacco’s Canadian unit has filed bankruptcy in the U.S. after losing an appeal in Quebec of a judgment in a landmark class action lawsuit over the health risks of cigarettes.

The Quebec Court of Appeals on March 1 affirmed a May 2015 ruling that found Imperial Tobacco Canada and its two main competitors are liable for up to C$13.6 billion in damages to Quebec smokers and their families who alleged the firms concealed the health risks of their products.

Imperial Tobacco was ordered to pay up to C$9.2 billion of the award.

The company said Wednesday’s Chapter 15 filing was aimed at preventing creditors from seizing tobacco held at its Ohio and Montana warehouses while it negotiates a payment plan. The tobacco is grown in Mexico but stored in the U.S. as part of the importing process.

“If there were any hiccups in that process, it would cripple the enterprise,”an Imperial Tobacco lawyer said at a hearing in the New York bankruptcy court.

Imperial Tobacco and another major tobacco seller, JTI-Macdonald Corp., had already obtained protection from creditors in Canada. Chapter 15 bankruptcy protection allows foreign companies to ask a bankruptcy judge to protect property located on U.S. soil.

According to The Financial Times, the class action lawsuit in Quebec is the first in Canada in which damages have been ordered against the tobacco industry to compensate smokers for health problems. The third defendant in the case was Philip Morris International’s Rothmans, Benson & Hedges subsidiary.

Using the corporate bankruptcy systems in Canada and the U.S. will enable Imperial Tobacco to “develop and institute a fair and streamlined court-approved process for the quantification and resolution of all tobacco claims,” the company said.

The company, which sells 15 brands of cigarettes and a line of vaping products, posted a profit before taxes and interest of C$792 million last year.

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