February 2007

The Poison Pill Alternative

By Brad B. Erens and Mark G. Douglas

The implementation of restrictions on stock and/or claims trading has become almost routine in large Chapter 11 cases involving public companies on the basis that such restrictions are vital to prevent forfeiture of favorable tax attributes that can be triggered by a change in control. Continued reliance on stock trading injunctions as a means of preserving net operating loss carry forwards, however, may be problematic, after the controversial ruling handed down in 2005 by the Seventh Circuit Court of Appeals in In re UAL Corp., 412 F.3d 775 (7th Cir. 2005).

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