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Former investors in the railway behind a deadly 2013 train derailment face a demand to return nearly $14 million in allegedly improper dividends on the grounds that the company was in financial trouble years before its bankruptcy filing, Dow Jones Daily Bankruptcy Review reported today. The bankruptcy trustee winding down the Montreal, Maine & Atlantic Railway Ltd. on Monday brought a lawsuit against the investors, which court papers show include a company with ties to the railway's former chairman. The lawsuit aims to show how, years before the accident that claimed 47 lives and partially destroyed a small Quebec town, the railway was in financial distress.

A bankruptcy judge said former students, the U.S. Department of Education and other creditors caught up in Corinthian Colleges Inc.’s collapse can vote on the defunct for-profit college operator’s liquidation plan, the Wall Street Journal reported today. Bankruptcy Judge Kevin J. Carey on Monday signed off on Corinthian’s disclosure document describing how it intends to pay off its creditors. Corinthian’s chapter 11 plan creates two separate trusts to dole out the proceeds from the sale of its assets. One trust will pay claims filed by students, government agencies and the Education Department. It isn’t clear how much Corinthian is on the hook for with its former students. Nearly 350,000 students took out some $3.5 billion in federal student loans to attend one of Corinthian’s campuses since 2010, according to the Education Department. Lawyers representing former students are seeking court permission to file a $2.5 billion claim against Corinthian. Votes on the plan are due Aug. 21. Judge Carey will consider approval of the proposal at a confirmation hearing scheduled for Aug. 26 in Wilmington, Del. Read more. (Subscription required.) 

Looking for a further examination of liquidation and litigation trust issues in bankruptcy? Pick up a copy of ABI’s A Practitioner's Guide to Liquidation and Litigation Trusts.

Since a judge approved its exit financing last month, LightSquared’s path for getting out of bankruptcy now hinges on the Federal Communications Commission giving the nod to transfer LightSquared’s spectrum license to its new owners: JPMorgan Chase & Co., Fortress Investment Group LLC and Centerbridge Partners LP, Bloomberg News reported today. But it lacks the one thing that will be the biggest factor in whether it can survive outside a court’s protection — FCC approval to operate its satellite-based wireless network. The FCC has no deadline to decide on the use of the spectrum, and the Justice Department has asked for time to vet foreign interests in the new ownership structure, leaving it unclear when the license transfer may be decided. 

Z’Tejas Southwestern Grill has filed for bankruptcy protection, the Austin (Texas) American-Statesman reported on Saturday. Z’Tejas has a total of nine restaurants, including five locations in Arizona and one in Costa Mesa, Calif., according to the company’s website. After reviewing the “historical performance of the company,” as well as “current and long-term liabilities,” “it is desirable and in the best interests of the company, its creditors, employees, stockholder, and other interested parties that” the bankruptcy petition be filed, according to court documents.

The lawyer in charge of Spectrum Analytical Inc. is preparing to sell the Massachusetts-based environmental testing lab's operations at a Aug. 25 bankruptcy auction after a judge announced a sale timeline, Dow Jones Daily Bankruptcy Review reported today. Bankruptcy Judge Henry Boroff set an Aug. 20 bid deadline for buyers who want to make an offer for Spectrum Analytical's operations, said Steven Weiss who took over the company earlier this year as chapter 11 trustee. Bidders will have to challenge a $5 million offer in hand from Eurofins Scientific Inc.

Chinese firms building and bankrolling much of the $3.5-billion Baha Mar mega resort in the Bahamas said today they would invest more to complete the project, where construction has been stalled for months as the project ran out of money, Reuters reported. The incomplete Baha Mar has roiled the fragile economy of the Bahamas, which is counting on the resort to provide 5,000 jobs and a 12 percent boost to its gross domestic product. China Construction America (CCA) said that it was prepared to invest an additional $100 million in Baha Mar. A unit of China State Construction Engineering Corp Ltd, CCA said it also had offered to provide a $175 million guarantee to China's Export Import Bank in connection with the bank's offer of a new $200 million facility to Baha Mar Ltd, the resort's developer.

Lawyers for Health Diagnostic Laboratory Inc. are preparing to hold a Sept. 10 auction to sell the Virginia lab's operations, which struggled after health regulators accused the company of paying illegal kickbacks to physicians who send blood samples, Dow Jones Daily Bankruptcy Review reported today. In a court order signed on Wednesday, Bankruptcy Judge Kevin Huennekens set a Sept. 4 bid deadline for potential buyers interested in the Richmond company, which employs about 645 people who help test for cardiovascular diseases like diabetes. Health Diagnostic Laboratory filed for bankruptcy on June 7, several months after agreeing to pay nearly $50 million to settle civil allegations filed by the U.S. Department of Justice that it paid to doctors who sent patient blood samples. Justice Department officials said the fees were illegal kickbacks; the company has denied wrongdoing.

Despite earlier predictions that the El Paso (Texas) Children's Hospital bankruptcy would be completed this year, consultants and lawyers for the hospital Wednesday asked that deadlines be extended into next year, the El Paso Times reported today. Children's Hospital asked Bankruptcy Judge H. Christopher Mott to double the hospital's "exclusivity" period. If it is granted, Children's Hospital will have the sole right to file a restructuring plan until Jan. 13. Until March 14, it will have the sole right to negotiate in an attempt to get the hospital's creditors to accept it. In its court pleading, Children's Hospital said that it needs the time because the consultants running the hospital have been preoccupied with other tasks related to the hospital's financial woes.

Nothing in the city charter prevents San Bernardino, Calif., from outsourcing its Fire Department, a federal bankruptcy judge ruled on Wednesday in a blow to the fire union that its attorneys immediately said they would appeal, the San Bernardino Sun reported today. The ruling clears the way for the city’s plans to replace city firefighters — plans that have been underway for months —with the San Bernardino County Fire Department and the private firm Centerra. Both are submitting bids to provide fire service, which the city counted on to save $7 million to $10 million a year in its bankruptcy exit plan filed in May. It’s a limited ruling, because Bankruptcy Judge Meredith Jury said that attorneys may be able to convince her later that state law requires the city to go through a formal “meet and confer” process with union officials before outsourcing.

Alpha Natural Resources Inc. is in talks to obtain financing for a potential bankruptcy filing early next month as it grapples with a severe downturn in coal prices, the Wall Street Journal reported today. The Bristol, Va., coal miner is negotiating the terms of a “debtor in possession” loan with its loan holders and senior bondholders. The new financing would help see Alpha through bankruptcy should it file for chapter 11 protection in early August, around the time some of its convertible bonds come due. The loan could total around $300 million to $400 million.