A
poison pill is a strategy used by companies to discourage hostile takeovers. With a
poison pill, the target company attempts to make its shares less attractive to the acquirer.
With the recent legislative changes that introduced "Examinership" type rules to a "no veto type PIA", some Personal Insolvency Practitioners have started to incorporate "Poison Pill" defences into the "no veto type" PIA.
A "no veto type PIA" could have a number of “classes” of creditors. For example, a PPR lender is a distinct “class” ( due to extensive legislation on family homes). Other classes of creditors
could be:
- Rates (guaranteed payment within 2 years)
- Income Tax/VAT/RCT/CGT/CAT
- Judgement Mortgage
- Hire Purchase
- Contingent Debt
- Retention of Title Creditors
- Unquantified Legal Claim
- Connected Person (cannot vote in favour)
- Trade Creditor
- Secured Loan
- Landlord
- Property Management Charges
For "no veto type PIAs", a 51% vote of creditors in just one class of creditors may be sufficient to carry the PIA over the line! In theory, a PPR lender could approve a PIA that just pays minimal dividends to other creditors.
If the PIA does not reach the "normal" voting thresholds of 65% overall debt, 50% secured debt and 50% unsecured debt, but does meet the "Examinership" test (in simple terms: at least one class of creditor has voted in favour of the PIA) then the PIP has to go to court to have the Scheme "Reviewed". Obviously, such court reviews are not cheap: I am aware of a recent case where one creditor incurred legal costs of approximately €20,000.
To "encourage" Creditors to vote in favour of schemes, some PIPs have started to insert "Poison Pill" clauses into the PIA's stating that if the debtor has to incur a costly trip to the courts to have the PIA approved, and if the courts approve the PIA, that the costs will be deducted from the dividend going to the "class" of creditors that voted against it. In such cases it would be important for the PIP to ensure that he has created the correct "classes" so that a "co-operative" creditor who is put in the wrong "class" is not penalised by a creditor of that class who votes no.
Jim Stafford