Firm adds Karen Fellowes to Calgary insolvency practice as low oil prices, pandemic takes its toll
Law firms should be gearing up for a wave of filings related to creditor protection and insolvency, says the new West Canadian leader of Stikeman Elliott’s national restructuring and insolvency group.
“I think we’re in a new world here,” says Karen Fellowes, who joined Stikeman Elliott earlier this summer, pointing to the “perfect storm” of events that have made things tough for those in Canada’s oil patch. The energy sector was already hurting from events such as the decision of OPEC to hike production, but then the Covid-19 pandemic has come to suppress energy demand, making the situation decidedly worse.
Fellowes says that, based on the number of calls the firm is getting and what her contacts in the financial world are telling her about the number of companies going to default on their lending arrangements, many firms “will come to a point where they have no choice but to enter into some sort of insolvency hearing.” She adds that law firms and insolvency lawyers “need to prepare for that.”
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Before joining Stikeman, Fellowes was at DLA Piper, working out of Vancouver and Calgary, since 2010. She holds Queen’s Counsel (Q.C.) designation and was also recently recognized as a top lawyer in her field by International Women’s Insolvency and Restructuring Confederation and has been appointed president of Pro Bono Law Alberta.
As a lawyer with insolvency expertise, Fellowes specializes in representing and protecting the interests of debtors, court officers, secured lenders, purchasers of distressed assets, unsecured creditors, landlords and tenants, suppliers and other stakeholders in commercial reorganizations, workouts, restructurings and proceedings under the Canada Business Corporations Act and other corporate statutes, the Companies’ Creditors Arrangement Act, and the Bankruptcy and Insolvency Act.
Chrysten Perry, Managing Partner at Stikeman’s Calgary office, says there is a growing realization that insolvency proceedings are likely to increase, with the energy sector one of the particular industries to be affected, so it “made sense” to add to the Calgary office. However, because insolvency and restructuring laws are federal rather than provincial statutes, the scope of cases that a lawyer might take on could extend outside their home province, as “insolvency practitioners are able to generally advise clients all across Canada.”
While adding to the Calgary office insolvency practice helps deal with the prospects of troubled businesses in the Alberta energy sector, Perry says the expertise of the legal team can be extended outside the province.
Still, the Alberta energy sector has been hit by a “double whammy,” Perry says, with the impact of the OPEC production hike on oil prices and the reduced global demand for oil because of Covid-19. “The result is banks are reassessing the loan facilities, with companies potentially becoming offside on their covenants, which is ultimately not sustainable.”
Given these circumstances, bringing in Fellowes to head up the insolvency team is a huge win, Perry says. “Karen is very experienced in connection with insolvency, but also has a really deep understanding of the oil and gas industry, and a strong track record in terms of advice to oil and gas companies.” She notes the negative business landscape will mean having to provide more restructuring advice to clients.
Fellowes agrees, and says she is getting more calls from companies worried about their future, not necessarily in “panic mode,” but worried about how the business is going to survive. Many of these calls are “about strategic decision-making at the board level,” where clients are looking and what the possibilities are for moving forward.
Not everyone is looking at the bankruptcy or creditor protection answer to their problems, Fellowes says. “Many companies are trying to see if they can do some informal restructuring without going through the insolvency statutes.” She adds that if firms don’t leave their situation to the” absolute most dire circumstances,” such as having their loans called in, or running out of cash, “there are opportunities to get their professional advisers in to help them strategize and find a way to come out of this a more profitable and efficient company.”
But even if restructuring under the CCAA is the answer to dealing with a firm’s insolvency issues, there shouldn’t be any negative or moral connotations to that solution, Fellowes says.
Sometimes it is just about giving these businesses a fresh start and moving to a process that gives them space to “slow down and get some breathing room, and look around to see their options,” while preventing creditors temporarily from moving in and seeking redress.
Perry says that for those leading a company on the brink of insolvency, it is often a time when “stress levels are high — they are getting uncomfortable calls from lenders, trade creditors, all while they are desperately trying to fulfill their obligations and protect the interests of their employees and shareholders.” After matching these firms with an insolvency expert, those in the C-suite “quickly realize they need this specialized advice,” and understand the need to restructure.
Insolvency cases often involve going to court regularly, something that Fellowes, whose background is in litigation, says she enjoys.
“I actually love going to court,” she says, and describes insolvency and restructuring proceedings as “real-time litigation.”
“Sometimes the pace is crazy — you are turning around briefs and affidavits and applications on very little notice. But it can be exhilarating. And when you’re in court, you’re talking about issues that are affecting companies, employees and entire communities, and getting a quick and meaningful result can be really rewarding.”
