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Bay Street law firms are bringing on partners who work on corporate restructuring as they prepare for a wave of insolvencies to hit the Canadian economy when COVID-19 relief measures dry up and lenders start to lose patience with struggling businesses.

“It’s the busiest I’ve seen our group since 2008,” said Elizabeth Pillon, who leads Stikeman Elliott’s restructuring and insolvency group in Toronto. When the pandemic first spurred widespread shutdowns in March, she said, the firm was inundated with advisory work as businesses sought information on government aid and help renegotiating financing terms with banks and other lenders.

That demand for advice and behind-the-scenes planning has continued, but Ms. Pillon also expects to see another wave of work as more businesses are pushed to take increasingly drastic measures, including bankruptcy or creditor protection filings in court. “The money is running out and we’re getting to the point where people have to face the inevitable, where we’re seeing more of the actual restructurings or liquidations occurring.”

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In recent weeks, several insolvency partners have swapped law firms. Virginie Gauthier, who was part of the Norton Rose Fulbright team that worked on the Sears Canada Inc. insolvency as counsel to the court-appointed monitor, departed for Gowlings’ Toronto office last week. The shuffle also included: Hugo Babos-Marchand leaving BLG for McCarthy Tétrault’s Montreal office; Kathryn Esaw moving from Aird & Berlis to Osler in Toronto; and Karen Fellowes leaving DLA Piper to join Stikeman Elliott as senior counsel in Calgary, where she will head the firm’s Western Canadian restructuring and insolvency practice group.

Despite early concerns that court closings would stall cases, the legal system quickly adapted to virtual hearings, allowing restructuring matters to proceed. According to Mohan Sharma, executive legal officer of the Ontario Superior Court of Justice, the Commercial List court in Toronto, which deals with many restructuring files, has heard about 1,400 matters by telephone or Zoom video-conferencing from mid-March to the end of July.

Some industries have already seen multiple formal creditor protection filings, including the retail and energy sectors. In the second quarter of the year, Innovation, Science and Economic Development Canada says there were 27 filings under the Companies’ Creditors Arrangement Act (the federal restructuring law for companies that owe more than $5-million), up from four in the same period last year. Nine companies made CCAA filings in Alberta and seven of those were in the mining, quarrying and oil and gas extraction sector.

Chrysten Perry, the managing partner of Stikeman Elliott’s Calgary office, said the dual hit of the collapse of oil prices in March and slumping consumer demand wrought by the pandemic “created the perfect storm out here [in Alberta],” which was part of the firm’s motivation to hire Ms. Fellowes, who also brings “deep energy experience.”

A wave of retailers, many based in Quebec, have also submitted formal filings, including DavidsTea Inc., Reitmans Ltd., Aldo Group, Laura, Tristan, Mendocino, Stokes, Frank and Oak, Sail, and the owner of Ricki’s, Cleo and Bootlegger stores.

Outside of these already hard-hit sectors, David Cohen, leader of Gowlings’ financial institutions and services group, said “the conventional wisdom is that September to March are going to be very telling months. The expectation is that there will be significant distress in the economy.”

Ontario is seeing real estate developers and related businesses come under pressure, and Mr. Cohen said large restaurant operators are also suffering. “You’re seeing major food retail chains unable to meet rental obligations coming out of the U.S. first. And are we seeing it here locally? Landlords are telling me they’re seeing it.”

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Marc Wasserman, national chair of insolvency and restructuring at Osler, said businesses related to travel, particularly airlines and the auto rental industry, are also at risk. “March, April and May were exceptionally busy. The summer slowed down a little bit, but we’re still busier than we’ve ever been,” he said.

In addition to associates and partners in its formal restructuring group, Mr. Wasserman said the firm relies heavily on lawyers in its employment, corporate, finance and tax law groups who also have experience working on insolvency matters. “We’ve built the group to deal with these kinds of things.”

Ms. Esaw brings a “dynamic experience base” to Osler, Mr. Wasserman said, adding that she worked on large insolvency files for several years at Stikeman Elliott before moving to Aird & Berlis last year.

“Firms are acutely aware of the need to have a strong team entering this next phase of COVID,” Gowlings’ Mr. Cohen said. He added that Ms. Gauthier, who has practised for more than 20 years and is called to the bar in both Ontario and Quebec, was a natural fit for the firm. “She has a plethora of experience and is a leading woman in the insolvency bar.”

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