Montreal ordered to pay Bixi creditors $16 million
The city of Montreal has been ordered to pay nearly $16 million to creditors of the bankrupt company that once managed Bixi.
The money will go to covering the costs of unpaid bills to companies who supplied bikes, docking stations and other related equipment for Montreal’s bike-sharing operations.
In a judgment issued late Tuesday, Justice Martin Castonguay ruled the city must pay $15.9 million plus interest to Litwin Boyadjian, the bankruptcy trustee firm handling the affairs of the Public Bike System Co., which launched the city’s popular but financially plagued bike-sharing service in 2009.
The management company officially declared bankruptcy on May 1, 2014, five months after it announced it was $44 million in debt and unable to pay its loans because Montreal was no longer supporting it.
As the PBSC’s only secured creditor, the city of Montreal took over all of the company’s assets, including its local bikes and stations, leaving many suppliers unpaid.
The lawsuit launched by Litwin Boyadjian on behalf of the creditors hinged on a $37-million loan the city gave to the PBSC in 2011. Originally, the bike-sharing service was operated by Stationnement de Montréal, responsible for managing the city’s parking lots and parking meters and paying the revenue back to the city. Responsibility for running Bixi was transferred to the non-profit firm PBSC when it turned out Stationnement de Montréal was spending so much to run Bixi it couldn’t pay parking revenues to the city. In 2009 alone it put more than $30 million into the bike-sharing service, much of it going to Bixi’s international operation, which was created to bring in profits by selling the prototype to other cities.
In 2011, the city lent the PBSC $37 million, most of which was paid back to Stationnement de Montréal to cover its Bixi-related shortfall. To cover the loan, the PBSC had to take out a mortgage, putting up assets, including its bicycles, docking stations and related equipment, as well as its international branch, as collateral.
When it declared bankruptcy in 2014, the city seized those assets.
Lawyers Gérald Kandestin and Robert Kugler argued on behalf of the bankruptcy trustees that the $37-million loan was illegal from the start because the city was lending money to a commercial enterprise, which is illegal under Quebec’s Municipal Aid Prohibition Act. Since the loan, which was given by the city and promptly used to pay the city back, was illegal, so was the mortgage PBSC took to cover it, the lawyers argued, which meant the city could not seize the assets.
The city countered that the loan was a form of aid provided to Bixi that was approved by Quebec’s Ministry of Municipal Affairs.
It also claimed the loan was legal because Bixi was a bike-sharing system and thus a service to society as opposed to a commercial enterprise.
Judge Castonguay said the evidence was clear that Montreal was intending to profit from its international sales, which is outside of the mandate of a municipality.
“If the city decided to expand its services when it didn’t necessarily have the means or the powers, it was a political move that taxpayers should have been advised of and should have been authorized by law, and not swept under the rug as was the case in this instance,” Castonguay wrote.
Thus the $37-million loan was void, as was the mortgage guaranteeing it, he ruled. Castonguay ordered the city to pay $11.9 million as the estimated costs of the assets taken by the city, and the $4 million it earned when it sold its international arm. With interest factored in, the city will have to pay close to $18 million, Kugler said.
“We are pleased that the court found the city liable and we will study the judgment,” he said.
As of 2014, Bixi has been operated by a non-profit company called Bixi Montreal, which is financed by the city.
A recent study by the Montreal Economic Institute found Bixi will have cost Montrealers $60 million by its 10-year anniversary in 2019.