By Katy Stech Ferek
British American Tobacco PLC put one of Canada's top cigarette distributors into bankruptcy protection in the U.S. after that subsidiary, sued by Quebec smokers in 1998 for hiding health risks, was ordered to pay 9.2 billion Canadian dollars (US$6.9 billion).
Officials who put Imperial Tobacco Canada Ltd. into chapter 15 protection in U.S. Bankruptcy Court in New York said the move is meant stop creditors from taking the tobacco held at the company's Ohio and Montana warehouses while it negotiates a payment plan. Tobacco for its cigarettes, grown in Mexico, is stored in those warehouses as part of its importing process.
"If there were any hiccups in that process, it would cripple the enterprise," said Imperial Tobacco lawyer Jennifer Feldsher, at a hearing held Thursday in New York.
Company officials added in court-filed documents that if legally operating distributors such as Imperial Tobacco shut down, operators that sell untaxed tobacco illegally "will expand to fill the void in the marketplace." More Canadians are buying illegal tobacco, they said.
Judge Shelley Chapman later agreed to temporarily block seizures.
British American Tobacco, one of the world's largest tobacco companies, indirectly owns Imperial Tobacco and several associated companies, which sell to roughly half of Canada's five million tobacco buyers.
Ontario-based Imperial Tobacco, through a subsidiary, sells its 15 brands of cigarettes and a line of vaping products through a network of roughly 180 wholesalers and 27,000 retailers. The two companies employ about 570 people.
Last year, Imperial Tobacco recorded profit before taxes and interest of C$792 million, according to court papers.
The U.S. bankruptcy case, initiated several days after Imperial Tobacco filed for Canada's equivalent of chapter 11 protection, has the potential to delay payments to Quebec smokers and their families behind a class-action lawsuit.
Canada's tobacco industry has fought off more than dozen major lawsuits filed in recent decades from smokers and government authorities who are trying recover health-care costs and other damages.
Imperial Tobacco said litigation claims filed against it in Canadian courts call for damages of more than C$600 billion. That amount dwarfs the company's value, an estimated C$5.5 billion as of Dec. 31.
On March 1, the Quebec Court of Appeals affirmed a May 2015 ruling that found Imperial Tobacco and its two main competitors are liable to pay up to $13.6 billion in damages to Quebec smokers and their families involved with the 1998 lawsuit.
Imperial Tobacco has denied wrongdoing in that case. The decision could be appealed to the Supreme Court of Canada, but tobacco companies haven't indicated they will pursue an appeal.
--Jacquie McNish contributed to this article.
Write to Katy Stech Ferek at email@example.com