OTTAWA (REUTERS) - Canada will shut down the rail operator whose tanker train blew up in a Quebec town last month, killing 47 people, because the firm does not have enough insurance to pay clean-up costs and other damages, a government regulator said on Tuesday.

The Canadian Transportation Agency said it would suspend the operating licence of Montreal, Maine and Atlantic Railway (MMA) and its Canadian subsidiary from Aug 20, to give the two firms "time to arrange for the orderly cessation of their operations in Canada."

MMA filed for bankruptcy protection in Canada and the United States (US) last week after the July 6 derailment and crash of the runaway train laden with oil. The resulting explosions obliterated the center of lakeside Lac-Megantic, a small town in eastern Quebec close to the border with Maine.

In a court filing, the company said its insurance covered liabilities up to C$25 million (S$30.6 million), while clean-up costs could exceed C$200 million.

MMA also faces a series of class-action lawsuits in Quebec and in the US on behalf of the victims, as well as a notice of claim from a firm that is unable to ship from its Lac-Megantic production facilities.

An estimated 5.6 million litres of oil were spilled in the crash.

The Canadian Transportation Agency (CTA) - an independent government body that oversees railway insurance - said it had contacted MMA and its Canadian subsidiary to ensure they continued to hold adequate third-party liability insurance.

But the agency was not satisfied with the response, said Geoff Hare, CTA's chief executive officer.

"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," Mr Hare said in a statement.

A spokesman for MMA Chairman Ed Burkhardt said he was unaware of the agency's move.

The disaster - the worst of its kind in North America in two decades - happened when the train started moving after it had been parked for the night a few miles outside Lac-Megantic.

Mr Burkhardt said last month he doubted whether the engineer had set enough handbrakes after parking the train.

Under federal regulations in Canada, there is no set minimum or maximum amount of insurance coverage required for railway operators. Coverage is based on a risk assessment carried out by the insurance company and the railway company.

The CTA said it would review the adequacy of third-party liability coverage to deal with catastrophic events, especially for smaller railways.

MMA also has track in Maine, where it continues to operate, said Mr Ted Talbot, a spokesman for the US state's transportation department.

Mr Talbot, who noted that the US federal government has jurisdiction over interstate railroads, said Maine was working on a contingency plan in the event that MMA ceases service unexpectedly.

Lac-Megantic, a town of around 6,000, was developed around the railway and businesses have already expressed concern about the impact if the MMA rail link closes permanently.

Town Mayor Colette Roy-Laroche was not immediately available for comment, said a spokesman.