Canada's transportation regulator on Wednesday announced it has suspended the license to operate of U.S.-based rail company Montreal, Maine & Atlantic Railway Ltd. (MMA), following the involvement of one its trains in the July Quebec fuel train disaster.

Effective Aug 20, the Canadian Transportation Agency wants the company as well as its Canadian subsidiary Montreal, Maine & Atlantic Canada (MMAC) to conduct an "orderly cessation" of their operations in the country.

Police helicopter view of Lac-Mégantic, the day of the derailment

The CTA enforced the suspension after discovering the company lacked adequate third-party liability insurance coverage to cover the expenses following the disaster as well as to support ongoing operations. Third-party liability insurance coverage is a legislative requirement if a company plans to operate a railroad business operation in Canada.

The suspension follows last week's filing for bankruptcy protection of MMA both in Canada and in the U.S. Reports hint the company will likely get tangled in a more severe financial mess due to the July 6 accident. Quebec authorities have started to conduct a criminal investigation into the matter, while the residents of Lac-Megantic town have been highly reported to seek financial aid to restore the shattered community.

"It would not be prudent, given the risks associated with rail operations, to permit MMA and MMAC to continue to operate without adequate insurance coverage," Geoff Hare, chairman and chief executive officer of the Canadian Transportation Agency, said in a statement.

According to a court filing made last week in Quebec, MMA has a $25 million liability insurance policy with XL Insurance Co. which is good to cover costs for evacuation, fire suppression, pollution cleanup, bodily injury and property damages.

Infrared image taken by NASA's Suomi NPP satellite shows the fire that followed the derailment: on the left, taken two days before; on the right, taken about two hours after the explosions

However, in the same filing, it was stated that costs of environmental cleanup were seen to reach above $193 million. Moreover, XL Insurance Co. still has yet to this time issue any payments under the insurance policy.

"Given their financial situation" it's suffice to presume that neither MMA nor its Canadian unit would be able to settle financial obligations at this time.

"This was not a decision made lightly, as it affects the economies of communities along the railway, employees of MMA and MMAC, as well as the shippers who depend on rail services," Mr Hare continued to say in his statement.

Forty-seven people were killed in the town of Lac-Megantic when a train of MMAC, carrying 72 tankers full of crude oil, derailed and exploded in the town. It had been earlier parked uphill from Lac-Megantic, unattended, when it started its descent into the town.

A gigantic explosion ensued, destroying 40 buildings and ripping a large area of Lac-Megantic. About 2,000 residents were forced to flee their homes.