Torys Business Brief focuses on key issues and actionable knowledge for businesses to emerge from the COVID-19 crisis resilient and well-positioned for the future. Each episode of Torys Business Brief features in-depth, accessible interviews with Torys lawyers, moderated by Munk Debates convener Rudyard Griffiths. These episodes are accredited for CPD purposes.

Widespread financial distress brought on by the COVID-19 crisis has pushed some organizations to the breaking point. On this episode of Torys Business Brief, insolvency lawyers David Bish and Kyle Kashuba discuss how this current financial crisis is different from the '08 recession, what principal challenges companies are facing, and what management can do to ease the pressure. As businesses scramble for liquidity, David and Kyle share their unique insights into the lenders' perspective, the sectors which have been hardest hit, and how organizations will be able to survive—and even find opportunity—in the current climate.


A full episode transcript follows.

Rudyard Griffiths (00:02): Hello, and welcome to Torys Business Brief. I'm Rudyard Griffiths. You may know me as the convener of the Munk Debates, where we bring together the world's sharpest minds and brightest thinkers to debate the top issues of the day. As the host of Torys Business Brief, my role is to provide you, the listener, with compelling conversations about the legal challenges the COVID-19 pandemic presents for businesses and business leaders.

RG (00:29): We are all taking stock of the ongoing effects of the pandemic. As the world continues to respond, businesses have wide-ranging issues to consider. This podcast will equip you with actionable knowledge your business can use to emerge from the crisis resilient and ready to thrive. To do this, I'll be drawing on the expertise and insights of the lawyers working at the firm named Corporate Law Firm of the Year by Chambers and Partners, Torys LLP.

RG (01:26): On today's Torys Business Brief, we talk to Torys Toronto partner, David Bish, and Torys Calgary partner, Kyle Kashuba, to explore the effects the COVID-19 pandemic is having on insolvencies. We're going to speak about the short-, medium- and long-term challenges facing distressed companies, the sectors which have been hit the hardest and what companies can do to ease the pressure.

RG (01:48): David Bish is the head of Torys' Corporate Restructuring and Advisory team. Having practiced more than 20 years in Toronto, David has plenty of experience navigating through challenging markets and is highly regarded for his bankruptcy expertise.

RG (02:03): David will be joined by Kyle Kashuba, a partner in the Corporate Restructuring and Advisory team based in Calgary, so Kyle is able to give us special insights into the unique challenges facing the energy sector. Kyle's experience also includes litigation involving large corporate and shareholder disputes.

RG (02:22): In times of distress, the usual rules often don't apply, so clients turn to experts like David and Kyle for advice on not only how to survive, but also how best to take advantage of opportunities and thrive. As you can imagine, Kyle and David are very busy and have a lot to tell us. David and Kyle, welcome to Torys Business Brief.

David Bish (02:43): Good morning.

Kyle Kashuba (02:44): Good morning, Rudyard.

RG (02:45): Let's flash back, because both of you have a career that straddles the 2008-2009 financial crisis, the last time that we faced significant insolvencies. And maybe, David, to start with you first, what do you see as the difference? Why is 2020 and COVID-19, in your view, a step change in how companies are going to approach the challenges of insolvency, and just more broadly, how the Canadian economy is going to address what looks like right now, a potential, a significant uptick in bankruptcies?

DB (03:24): I think there are really two fundamental differences between where we were in 2008 and where we are today. The crisis in 2008 was, in many ways, the inverse of what we're seeing now. At that point, that was a financial crisis that hit financial institutions and it hit the capital markets, but it didn't hit companies first and foremost. Companies still had sound business models. They were sound companies. The threat that it posed to them was really access to capital and the effect of functioning of the capital markets, and that was kind of an external threat to the companies that they had to navigate and get through. At the time, governments had a pretty full toolbox. There were a lot of tools that they could use to avoid a correction that otherwise should have happened. By all accounts, it never happened the way it should have, because the governments were quite effective in staving it off, using those tools.

DB (04:25): Fast forward to 2020, and now it's the opposite of that. Now you've got financial institutions that are fairly unaffected by this crisis. There's lots of capital. Everybody is very concerned about how they deploy that capital, but it's not a capital markets functioning issue. It's not even principally a liquidity issue from a financial institution perspective. Instead it's an internal problem for companies now. They don't have sound business models. When your revenue dries up, your business model is severely stressed. And so, this time round, it's the companies that are in direct trouble, not the financial institutions, and, obviously, has been well commented on, governments have been engaging those tools for a decade now, and they don't have a lot of tools left in the toolbox.

DB (05:19): And so it will be much more challenging for governments to try to stave off a recession or an economic correction this time round. And you're seeing more drastic government measures with bailout programs and the things that we didn't see on this scale in 2008, and in part, that's because they are limited in the tools that they have at this point.

RG (05:44): Kyle, over to you. You kind of entered the legal profession prior to the financial crisis, so you were right there to kind of witness those critical years of '08-'09. But maybe also talk a little bit about how the recovery after '08 and '09, in terms of insolvencies and bankruptcies, the scale, the pace of them, was maybe potentially different to what you're anticipating now.

KK (06:09): Well, as David mentioned, the 2008 financial crisis was very different than what we're currently experiencing. It was more on the lender and financial institution side, whereas it's presently the companies that have the dilemmas, the problems, the issues that are driving many of the insolvencies in Alberta and across Canada. In Alberta presently, we're experiencing a near unprecedented liquidity crisis and a general financial state of turmoil. We're drifting in unchartered waters.

KK (06:41): What will be the new normal coming out of this crisis? That's a big question and a difficult one. We're already getting a glimpse of what this might mean for many companies here in Alberta, and that's lower and slower earnings, and in many cases, higher costs. Companies, this time around, I think are going to struggle even more to determine what can possibly stabilize revenues, and there's no quick fix to this predicament. Forecasting and planning, including working capital management and capital expenditures programs will be a challenge for many of our clients. With the COVID-19 situation, depressed oil and gas prices, a low Canadian dollar and a continually shifting regulatory regime, there's a speculative market, and with uncertainty comes a reluctance to commit to a restructuring plan.

RG (07:26): Thank you, Kyle. David, to come back to you, let's kind of now cast our minds forward a bit to this moment that we're in now. We've just talked about the differences between 2008-2009 and today. What do you see as the principal challenge facing companies at this moment? I mean, you're dealing with them day in and day out right now in the kind of heat of this crisis. What's top of mind in your client calls? What are they coming to you saying, "Here's a problem, it's an immediate. Help me fix it."

DB (07:56): We certainly are getting a lot of calls on the short term. When you're shut down, and you're not operating and you have no revenue, your immediate focus is the next couple of weeks or months, and so it's a short time horizon. It's often been said that management spends 60-70% of their time thinking about their working capital cycle, and when you don't have revenue and you still have costs, you're very focused on that working capital cycle, so there's a lot of short-term focus on liquidity. Essentially, how do we survive the current couple of weeks slash months until we can reopen, until, hopefully, there's some sense of normalized business operations? And so that's been all about, how do we pay the bills? There's been a lot of focus on cost cutting, and that includes laying people off temporarily, or in some cases permanently, but trying to get control of your costs, trying to make sure you can weather the storm. How do you deal with rent that you have to pay when you're not operating? All of those sorts of short-term liquidity questions. That has been a consuming focus for people.

DB (09:04): The second part of that is really been a focus on counterparties. What do we do about people we're dealing with if they have insolvency issues? And so contracts, understanding our contract, what rights do we have under our contracts? What rights do counterparties have under theirs? How will this potentially change the way we do business with a variety of other people? That has certainly been the immediate focus.

DB (09:28): We're starting to see that shift, as it should, to a longer-term viability focus, which is if you can get through this, and you can resume operations, and your people can come back, and you go back to some sense of normalcy, what does that look like long term? And do you have a viable business model long term? Can you survive long term? For a lot of companies, if revenue comes back 80%, 85%, that doesn't make for a viable business model. They need the revenue come back 100%. Those are really the three things. We can talk about any one of those in more detail, but it's really short-term liquidity, long-term viability and how do we deal with contracts?

RG (10:13): Kyle, come to us on the viability piece, because I think what a lot of people are trying to figure out now is, further to David's remarks, how fast does it have to come back to something approaching 100%? Because, as David mentioned, there's a lot of business models don't work at 75, 60, 80, you pick your number. Especially, give us that view from Alberta, from the West, with the filter that you're able to apply to the energy sector. I mean, is this something this sector can wait months for? Can it wait into 2021? Or, really, are the viability concerns going to start building up sooner than we might think?

KK (10:58): That's a good question. To start, typically, with respect to liquidity, and the most readily available sources are to draw down unfunded, committed, revolving credit facilities. This is where a lot of companies are presently. In this environment, it's important for a borrower to confirm they can satisfy all its conditions to availability under its revolver. While many of those conditions might be straightforward, others are more subtle.

KK (11:22): Most revolvers require representations and warranties to be refreshed upon drawing, including there's representations that no events occurred that amounts to a Material Adverse Effect—or an MAE, to use our common parlance. Now the definition of what an MAE is can vary from agreement to agreement. If a company doesn't have liquidity, there's less leverage, there's fewer options going forward, and the company might be in a situation where quick liquidation is the only option. The liquidity, immediate needs being satisfied is the first step here.

KK (11:58): Long-term viability depends, firstly, on getting through that liquidity crunch. As David mentioned, generally speaking, there's an abundance of contractual breaches that need to be addressed, as well, both monetary and non-monetary. That is in the short term and the long term. Companies that are faced with numerous contracts that they are in default and on numerous other contracts where their counterparties are in default, these defaults raise the specter of contract terminations enforcement, default rates of interest and the exercise of other rights and remedies.

KK (12:31): In the short-term viability, if a company can get past that, into six months down the road, a year down the road, commodity prices changing, regulatory regime, perhaps, shifting, I would like to see, especially out in Alberta, 2021 being a better year for our partners and clients in the oil and gas space, as opposed to just pure business for the restructuring insolvency folks.

RG (13:01): Hi. Thanks for listening to Torys Business Brief. For more information on how organizations and business leaders should be addressing the challenges of the COVID-19 pandemic, visit Here you'll find a wealth of in-depth resources featuring the analysis and insights of Torys' lawyers. Again, that website is

RG (13:26): David, I want to tap into your kind of considerable experience looking across different industries and sectors in a moment. But before we do that, let's talk a little bit about the lenders. I mean, that's the other side of these contracts, these counterparty deals. What is the feeling that you're getting from the big lenders, the banks, in particular, right now?

RG (13:48): I mean, the sense is that there's a lot of understanding, there's a willingness to work with creditors. How long does that continue? Because at the end of the day, those banks and lenders have investors, shareholders, others who need their capital preserved and need to know that the losses that the creditors have aren't going to be passed on further deteriorating and affecting the balance sheet of the lender. Give us a little sense of what your conversations are like with lenders.

DB (14:19): Well, in the Canadian market, simplistically, there's sort of two categories of lender. There's the traditional bank lender and then other lenders. Other lenders may be a bit more aggressive than the traditional six, seven, eight traditional Canadian banking institutions. I think, generally speaking, what we have seen is that they have all been good corporate citizens during this initial period. They have been supportive for the most part, but, obviously, as you say, they've got to think about their bottom line.

DB (14:50): One of the things about insolvency is, in some respects, the worst things get, the better it is for you as a borrower. And that's kind of a backward sounding statement, but if there's a little bit of trouble in a particular business or particular industry, if lenders can enforce ... and often, they just want to get their money back. They want to monetize the collateral, get their money back and be repaid. And if that is a viable option, that is often the path they will go. "Sell your company, give me the money that you get for selling your company to pay down my debt." And so they will put you through a pretty standard process of a forced sale. And that may be cooperative, it may be in a receivership, but you'll go through some form of a sale process.

DB (15:33): But when things are really bad, not just across the sector, but, in fact, the whole economy, what you find is you don't have enforcement options. You've often heard in this climate people talking about it's a terrible time to try and go and sell any company right now. There are limited buyers. There's too much uncertainty. There may be difficulty getting capital to fund transactions. And so you almost have captive lenders, in some circumstances, who don't have the traditional option of being able to just sell the business and get repaid. And when they start to look at, "What would we get if we sold this business?", you're starting to look at cents on the dollar that are particularly unattractive, and that applies even to bond holders, not just traditional bank lenders. They start looking at these things and going, "Now is not the time to sell it."

DB (16:21): When it's that bad, it actually encourages a level of creativity. This is where, again, we get to do interesting things in this kind of an environment, because you've got to find other solutions other than just selling the company and giving the money to the bank. You actually have to figure out a way to get through for the next two years or so, until things come back, prices come back. Two years from now might be a much better time, if you're a lender, to collect on your loan than to try to do it today.

RG (16:49): Kyle, you must be seeing a lot of creativity right now in the oil patch and the energy spaces. Lenders try to figure out ways to, as David said, prevent a fire sale of assets, while at the same time, protecting their investors, protecting their balance sheets. What are some of the innovations that have come into the space in the last couple of months?

KK (17:16): That's exactly right, Rudyard. In any discussion that you're in, in downtown Calgary, someone's going to cite you this morning's WTI crude oil pricing per barrel of oil. The lenders are on top of this. There's a lot of companies that are watching the oil prices and gas prices closely. There's also, of course, the general slowdown and mass layoffs in the oil and gas industry, something that we are getting a lot of inquiries on presently. That is probably the most immediate planning response that involves layoffs, downsizing, as well as reductions in capital expenditures. We've witnessed a significant increase in employment inquiries.

KK (17:53): In oil and gas, where there's trouble and trepidation, there's going to be ways by which liabilities can be managed. Oil and gas companies can and should be conducting a holistic review of their liabilities and actively manage them to mitigate risk and improve their liquidity. The borrowers know that and the lenders are on top of it. Additional contractual terms can be built into credit agreements and loan documents, as well as forbearance agreements. In a forbearance situation, a lender knows there's a default. They choose to forbear from enforcing their rights in exchange for, potentially, setting of milestones and a planned forward by the company. Those forbearance agreements can vary greatly, but what you typically do see is some payment of fees, some immediate triggers in the case of a default, and a timeline to allow the company to potentially restructure their affairs and come up with a plan to the lenders to ensure a payment out over time.

RG (18:59): David, let's talk a little bit about some of the other big industries. Kyle's just given us an important snapshot there of the energy sector, oil and gas. But let's talk other industries that have been hit hard, most notably retail. Also, let's talk about some of these emerging industries that were really kind of economic darlings, so to speak, pre-COVID-19. Here I'm thinking of the cannabis sector and all of the lending and growth and increased market capitalization that happened within the cannabis space.

DB (19:35): I'll go backwards. I'll start with cannabis and work to retail. In an emerging industry, one of the things that you expect in any circumstance, irrespective of a financial crisis, is that there's going to be a consolidation of the industry. If you think about tobacco, people can get all the cigarettes they need from a couple of companies. If you think about automobiles, a couple of companies. So when you have a mature industry, you typically have a few players and they've got the means to weather storms, because they are broad, they have resources, they're established, they have more stabilized revenue.

DB (20:08): When you've got an emerging industry like cannabis, you've got hundreds of players, and there was never a scenario in which 10 years from now, those hundreds of players would all still be here. So there was going to be insolvency in those kinds of emerging industries, regardless. Some of them would avoid insolvency through mergers, acquisitions, other strategic transactions, but you would see a consolidation taking place. This crisis will certainly accelerate that. We've already seen a number of cannabis companies, for example, that have gone under in recent days, and there will be many more of those to come.

DB (20:44): And then you move to something like retail. And that certainly has been, I think, the focus for the media on this crisis, because it's something everybody can relate to. The stores are closed, and that's clear and obvious. You don't necessarily see what's happening at a manufacturing facility and how they're dealing with the crisis, but everybody shops, and everybody sees that the stores are closed, and that has an obvious effect. People are moving to online shopping. There's lots of disputes. Do you have to pay rent during this period? What happens if you just refuse to pay rent? How are landlords coping with it? And they're very public institutions. We've seen a number of retail filings in the last couple of weeks, including Reitmans filed a few days ago, and so all of those are very public, and people recognize the brands and the stores and so it hits close to home.

DB (21:33): But I think that's an industry where in particular, it's a great example of the challenges that people will face. Those companies, as they think about normal, no one knows what normal will look like. When will the stores be open? How quickly will consumers come back? Will they come back? Will they get used to shopping online? And again, we talked earlier, most of their margins are pretty thin. If 80% of people end up going back to malls and shopping, and you've got 80% of your revenue back in shopping malls, 80% of revenue is not enough for that model to work. And so, there's going to be a real focus, certainly on retail, online platforms, everybody desperately trying to figure out a way to compete with Amazon, and figure out what "new normal" looks like for consumers, and whether or not this crisis is going to actually create permanent changes in spending patterns and consumer consumption, or whether this is a blip. And there'll be some sense of, now we're going back to normal.

RG (23:03): Well, in our remaining time together, let's shift to solutions. Kyle, maybe come to you first. What do you see as the number one opportunity, something that corporations should be doing right now to position themselves for future growth? And maybe given your focus on insolvencies, what's the number one thing to be doing to think about how you stave off the risk of bankruptcy?

KK (23:31): I think that's an easy answer, Rudyard. I think the key recommendation is early consultation with advisors while there's still optionality and runway to explore an out-of-a-box situation or solution. This is highly advised and can make the difference between a soft or hard landing. Boards of directors are going to want to get expert advice on their duties, as it can be challenging to properly balance divergent stakeholder interests.

KK (23:56): A mistake that many companies make is waiting until there are serious liquidity issues to analyze options and take action. The time to act is now and there are real palpable advantages to being proactive when faced with an economic downturn like this. I'd point out that the company has significantly more options if it has, say, at least six months of cash liquidity. Now, these companies have the ability to negotiate with lenders and counterparties and possibly restructure their liabilities as needed in order to preserve going-concern value throughout the economic downturn.

RG (24:26): Very astute advice. You have to move fast, and as both of you painted a picture for us, this is a moment where lenders aren't rushing to see companies forced into sales. You have to take advantage of the current climate with lenders now to maximize your opportunity.

RG (24:43): David, drawing on your extensive experience, what's your number one recommendation to companies who, let's say they're not facing an imminent insolvency bankruptcy, but they see this as a risk and maybe something more than just a tail risk. What do they need to do?

DB (25:00): I think they need to be opportunistic about the circumstances that they are in. There are really two components to what we do. One is, I'd analogize to being doctors: You bring patients to us, and our job is to save the patient. The other aspect of our job, and it's the smaller part of what we do, by far, but you we're undertakers: You bring us deceased, and it's our job to deal with the deceased. The mistake is always to wait until you move from the patient category to the deceased category.

DB (25:29): People will call up on a Wednesday saying, "We have payroll on Friday, and we're not going to be able to make it. What should we do?" And invariably, it's too late at that point to do anything. You can't wait until that point in time.

DB (25:41): This climate presents opportunities. As you say, there are lenders who are captive or may otherwise be willing to deal with you. There's all kinds of interesting and creative discussions going on. Creative discussions between landlords and tenants. Creative discussions between borrowers and lenders. There's a real opportunity to get out in front of it.

DB (26:03): Obviously, you look at the triggers you can control. You look at cost and you figure out what you can do on the cost side. You look at revenue and you figure out what we can do on the revenue side. Look at whether or not you can find additional capital, but with a little caution around that. Borrowing money may get you through a liquidity crisis, but at some point you have to be able to actually repay the money you borrow. And so, over-leveraging your company, particularly when you don't know what your business model looks like three months from now, is a bit risky.

DB (26:32): But you think about, "What are our options in terms of capital?", whether that's debt or equity. And you consider all of your restructuring opportunities, forbearance agreements, contract renegotiation, distressed M&A transactions, out of court restructurings that you can negotiate with parties. There's a tremendous amount you can do to position yourself during this time so that you're not knocking on our door months from now saying, "We need an undertaker."

RG (27:01): Yeah. Good analogies. That certainly clarifies the challenges, and frankly, the seriousness of this for many businesses. I want to end just with a question for you both, because I think it's on a lot of our listeners' minds, which is, how long can this go on for? I mean, we're out of the lockdown, but we're clearly into a kind of a demand-starved environment. People are scared of this virus. Their habits are changing. Let me make an opinion that the early hopes of a V-shaped recovery seem to be fading, and we're starting to grasp for other letters in the alphabet to give us a shape for the recovery. It could be an L, it could be a W, we don't know.

RG (27:46): But, Kyle, give a sense, again, of the view of the oil sector, I mean, how long can we be in this demand-starved environment before we start facing the threat of something worse than just a garden variety recession?

KK (28:01): There's a lot of unknowns and a lot of uncertainty right now. What's clear is there's not an immediate fix on the horizon. Is it going to be six months? A year? Is it going to be 2020 before some sort of normalization can occur? That's a difficult question. It's a good question. It's a question we're getting asked a lot, presently.

KK (28:25): In the face of this uncertainty, I think the best advice for the clients who want to make it past whatever the curve holds is that those companies that will survive and strive are going to have to be forward looking and engaged proactively to address these challenges. Our clients are well-advised to keep their minds and options open in their preparation, but to act quickly and deliberately in facing situations like this. It's not going to be an overnight fix, but I think when the winds of change start coming, those companies that can catch the wind in their sail, hopefully, they have a brighter 2020-22.

RG (29:07): Yes. Let's hope. David, last word for you. I mean, I think we're all starting to realize that we are going to be in an economic environment where that consumer, either in the retail space, the energy space, you name it, isn't going to be there in the same way that they were in the past. I mean, how long can that go on for before your phone, literally, can't ring off the hook anymore? I mean, what is the risk, again, of not being able to come through this with a mild recession, but instead courting a bigger economic turndown?

DB (29:43): I think the longer term approach is going to have to be fundamental changes to business models. Unlike some recessions where you just get through, you get through a low commodity price and then everything comes back. If you're an airline, you can't base your model for 2021 and 2022 and 2023 on the assumption that we'll just get through this, and two or three months from now, everything will be the way it was before. Vacations and travel, and hotels, business, people are discovering that working virtually works. They're discovering that meetings virtually work.

DB (30:18): I think there'll be long-term changes that will fundamentally impact businesses that they will have to adjust the business to deal with. That shopping and retail, the way that functions, may change. There are so many industries where the changes won't just be a temporary blip and then revert. Those who can anticipate and adjust to the changes that are going to be permanent will do much better, obviously, than those that are mired in a model pre-COVID that may never fully come back.

RG (30:48): David, Kyle, thank you for a rich and stimulating conversation. I've certainly taken a lot away from this in terms of new insights and a new understanding, not just of the challenges, but, also, as we've talked about the opportunity, this overused word of the moment is "pivot", but I think that's what we're all kind of grasping for. You've certainly given us and given me some important signposts to think about where we should be pivoting to. So, Kyle and David, thanks for coming on Torys Business Brief today.

DB (31:18): A pleasure. Thank you.

KK (31:20): Thank you, Rudyard.

RG (31:26): Well, that was a really interesting conversation with Kyle and David. My takeaway, twofold. One, this is fundamentally different than 2008-2009, and the key insight is that this is not a crisis of the financial sector. It's not a crisis of financial institutions. It's really a crisis of supply and demand in the actual economy itself. I think that's takeaway number one.

RG (31:52): I think takeaway number two, both Kyle and David gave us that important insight that now is the time to engage with lenders. That when there's a broad set of economic risks that are affecting an entire economy as a debtor, as a creditor, your ability to have those creative conversations with your lenders to restructure in ways that can position you for future growth is now, while those lenders are open to those types of conversations.

RG (32:21): A great kind of lesson—101—in insolvencies and bankruptcies from Kyle and David today. I've certainly have, as I hope you have as the listener, taken a lot away from this conversation.

RG (32:39): Well, that wraps up this episode of Torys Business Brief. You can read more on some of these issues in the piece entitled "The Long Tail of the Pandemic: Business Viability After the Crisis". You can find this essay by visiting

RG (32:55): On our next podcast we'll speak with Torys' partners, Mark Bain and Tara Mackay, on project and infrastructure development post-COVID-19. They'll offer their Canadian and U.S. perspectives. And then we'll turn to Torys' partners, Valerie Helbronner and John Terry, for insight into how COVID-19 is affecting indigenous communities in relation to project development.

RG (33:40): Thank you for listening to Torys Business Brief. I'm your host, Rudyard Griffiths.

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Originally published June 01, 2020

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