American Apparel Returns to Chapter 11

The company has a $66 million offer for the intellectual property rights of its brand and other assets, but the fate of its stores is unclear.
Matthew HellerNovember 14, 2016
American Apparel Returns to Chapter 11

Nine months after emerging from bankruptcy, American Apparel is back in Chapter 11 after failing to deliver on its turnaround plan.

The embattled clothing manufacturer and retailer filed a bankruptcy petition on Monday to facilitate the sale of the intellectual property rights of its brand and other assets. It has reached a $66 million deal with Canada’s Gildan Activewear, but will hold an auction in the hope of finding a higher price.

The fate of American Apparel’s 110 stores is unclear and, if the bankruptcy court does not approve a $10 million loan designed to keep the company afloat, it will run out of cash next week, forcing a full-blown liquidation.

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“We are confident that this decision is the best strategic move forward, in order to preserve the legacy of the American Apparel brand,” the company’s chairman, Bradley Scher, said in a letter to employees.

According to the Los Angeles Times, former CEO Dov Charney said he might consider bidding if he found a financial backer to partner with, but that he would first need to assess American Apparel’s financial condition.

American Apparel initially filed for Chapter 11 protection in October 2015 after a steep drop in sales and a protracted legal battle with Charney, who was ousted amid allegations of improper behavior. It emerged from bankruptcy as a private company under the control of its bondholders.

But the turnaround plan failed to take hold its continued to face declining sales, exacerbated by its costly manufacturing plant in Los Angeles. “A plan to improve online selling didn’t pay off, and, at a time when shoppers are going online in greater and greater numbers, American Apparel watched its online sales fall,” The Wall Street Journal said.

In court papers, American Apparel’s chief restructuring officer, Mark Weinstein, blamed “unfavorable market conditions that were more persistent and widespread” than the creditors anticipated.

Chief Executive Paula Schneider, who replaced Charney, left the company last month and American Apparel had been winding up its operations in the U.K., Ireland, Germany, Spain, Canada, Japan, and Australia.

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