"CanOpco" is a 100% subsidiary of "NRHoldco,” a US based corporation, which filed for protection under Chapter 11 of the U.S. Bankruptcy Code. On the same date, CanOpco filed for creditor protection under the CCAA. During the stay order period, CanOpco had accrued significant interest expense on inter-corporate loans. For purposes of 20(1)(c), did CanOpco have a legal obligation to pay interest during the stay order period? CRA responded negatively, stating:
[]I]n Re Philip's Manufacturing Ltd. (1992), 12 C.B.R. (3d) 133 (B.C.S.C.), add'l reasons in (1992), 91 D.L.R. (4th) 766 (B.C.S.C.) aff'd in (1992), 12 C.B.R. (3d) 149 (B.C.C.A.), it was held that, since the purpose of the stay of proceedings under the CCAA was to maintain the status quo, no interest was payable on claims during the period of the stay without a court order.
… CanOpco's legal obligation to pay interest expired on the day it obtained protection from its creditors under the CCAA. Beyond that day, the obligation to pay such interest could not exist because its creditors, by virtue of the stay proceedings, could not enforce payment. Therefore, as there is no legal obligation to pay interest during the stay order period, in our view, the debtor, i.e., CanOpco, cannot deduct any interest expense during that period pursuant to paragraph 20(1)(c)… .