American Apparel Inc (NYSEMKT:APP)’s board unveiled a poison pill strategy aimed at preventing a takeover from ousted founder Dov Charney on Saturday.

American Apparel

The embattled Los Angeles-based clothing chain said the one-year duration stockholder rights plan would strengthen the company’s ability to protect stakeholders.

Charney pushed out

Earlier this month, American Apparel Inc (NYSEMKT:APP)’s board announced that its founder, president and CEO Dov Charney, had been fired following an investigation into alleged misconduct. The former CEO had been facing sexual harassment and other accusations for years.

The ousted CEO was embroiled in a scandal culminating in 2012 in which an employee, Irene Morales, accused him of forcing her to become a “sex slave”. The case was thrown out in 2013, but more recently Charney was accused of allowing an American Apparel Inc employee to create a blog with naked pictures of Morales, which was the basis for the clothing chain’s board releasing him from duties.

Soon after Charney’s ouster, UK-based Lion Capital used his removal to trigger a clause in the loan agreement that requires American Apparel to repay a $10 million loan. The $10 million default could trigger Capital One to call in its $30 million loan to the embattled clothing chain, and even creates the possibility of bankruptcy by creating a cascading flow of loan demands that could dry up liquidity for the firm.

American Apparel’s poison pill

In his filing with the Securities and Exchange Commission Friday, Dov Charney said that he was looking to acquire more than 10% of American Apparel’s stock using loans from investment firm Standard General LP. Citing people familiar with the matter, Elizabeth Paton of Financial Times reports the ousted CEO would need to acquire around 50% of the outstanding shares before he could call a special meeting to discuss the future of the company. Mr. Charney already holds a 27% stake in the clothing chain.

Unveiling its poison pill strategy Saturday, the American Apparel board said that a special board committee adopted a one-year-long ‘stockholder rights plan’ that will limit the ability of investors including Charney “to seize control of the company without appropriately compensating all American Apparel shareholders”. The statement further added that the rights are attached to all shares of common stock and each right will facilitate the holder to purchase one ten-thousandth of a share of preferred stock at an exercise price of $2.75.