American Apparel Wins Bankruptcy Showdown

A judge says the retailer can proceed with its bankruptcy exit plan, leaving founder Dov Charney out in the cold.
Matthew HellerJanuary 25, 2016

A Delaware judge on Monday approved American Apparel’s plan to exit bankruptcy, rejecting Dov Charney’s bid to regain control of the company he founded.

Charney had teamed up with a group of investors including Hagan Capital Group and Silver Creek Capital Partners to offer $300 million to acquire American Apparel, a proposal they said was superior to its reorganization plan.

But creditors voted to approve the plan, under which American Apparel would emerge from bankruptcy under the control of its lenders, effectively wiping out shareholders including Charney. And in a ruling Monday, U.S. Bankruptcy Judge Brendan Shannon said he would not “second guess the debtors’ decision.”

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“I have no doubt that [Charney] wants only the best for American Apparel and especially for its thousands of employees,” Shannon said. But “Mr. Charney’s objections to the confirmation [of the reorganization plan] are overruled.”

Charney told the Los Angeles Times he was “obviously disappointed” by the decision but would not appeal it.

“This outcome is one that I have been working tirelessly to avoid for nearly two years in an effort to protect value for all of the company’s various stakeholders,” he said in an emailed statement. “Now all stockholders will have their shares and value extinguished.”

The restructuring would swap about $200 million worth of debt for equity. Shannon said American Apparel is not obligated to put itself up for sale when it has a bankruptcy exit plan that has been approved by all classes of creditors.

American Apparel said it is now “focused on exiting Chapter 11 and fully implementing” a turnaround strategy that includes launching new products and designs, boosting revenue and creating new marketing campaigns. So far, the plan has failed to boost its sagging sales, with the retailer reporting a net loss of $14.5 million in November alone.

Charney testified last week that he had tried to take back the company multiple times since he was ousted as CEO in December 2014, but was thwarted by an “impossible” board.

“There’s no chance I can ever have a fair shot,” he lamented.

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