Struggling oil-exploration company Ivanhoe Energy Inc. (TSX: IE, Nasdaq: IVAN), which has been negotiating with bondholders for many weeks, has filed for bankruptcy protection in Canada.

The Vancouver-based business filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (BIA) in Calgary, the first step in the BIA process, on Feb. 20.

Ernst & Young Inc. has been appointed as Ivanhoe’s trustee for the proceedings.

While it goes through the BIA process, the business will continue to evaluate strategic alternatives, including restructuring debt and pursing an asset sale.

Filing for BIA allows the company automatic stay, which means creditors can’t grab its assets during the case. That period can last between 30 days and six months.

The BIA filing does not come as a shock -- Ivanhoe raised doubts about the business’ future before, saying in SEC filings that there was doubt surrounding the company’s ability to continue as a going concern, or without the threat of liquidation, because of losses. The company had a $570 million deficit as of Sept. 30.

Ivanhoe missed an interest payment on 5.75 percent convertible unsecured notes due Dec. 31, but had until Jan. 30 to pay or come to an agreement. When that didn’t happen, Bank of New York Mellon, the trustee for the notes, sent a notice of default dated Feb. 9. For more, see Ivanhoe Energy Defaults, Continues Bondholder Talks.

“Negotiations will be continuing under a court-supervised process,” says Blair Vago, Ivanhoe CFO.

Because of the BIA process, Ivanhoe’s shares will be suspended from the Nasdaq exchange on March 3. Ivanhoe says it does not plan to appeal the decision. The exchange had previously issued several delisting warnings to the energy company because of changes to its board of trustees and a too-low stock price.

Ivanhoe had been pursuing strategic alternatives, including a debt restructuring or potential sale, as it negotiated with bondholders. For more, see After Missing Interest Payment, Struggling Energy Co. Ivanhoe Works to Restructure. Vago previously told Mergers & Acquisitions he thought restructuring was more likely than a sale.

Before the BIA notice, the company received a $2.37 million bridge loan from founder Robert Friedland, to pay debt. The loan is meant specifically for severance payments in Ecuador, where the company scaled back exploration activities, according to SEC filings. Friedland had previously provided Ivanhoe with a $2.2 million loan in October and a $540,000 loan in December.

Low crude oil prices are expected to bring up a wave of distress in the energy sector, both for oil and gas exploration companies and service providers. For more, see Investors Flow Into Oil & Gas and Distressed Debt Investment Opportunities Are Expected to Rise.

For more struggling companies, check out Mergers & Acquisitions Distressed Company Watch List.  

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