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By
Reuters
Published
Jan 20, 2016
Reading time
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American Apparel faces tussle for control at bankruptcy hearing

By
Reuters
Published
Jan 20, 2016

American Apparel's former chief executive officer Dov Charney will take the stand in Bankruptcy Court on Wednesday in a last-ditch effort to wrest control of the ailing teen retailer from a group of hedge funds.

Los Angeles-based American Apparel Inc, known for its "Made in the U.S.A" fashion, filed for bankruptcy in October, saddled by debt, excess inventory and millions of dollars in legal claims tied to Charney.

An ad for the brand from 2015 - American Apparel


American Apparel wants approval for a plan that will bring the company out of bankruptcy under the control of hedge fund investors, including Standard General and Monarch Alternative Capital.

Last week the company's board rejected a $300 million takeover bid involving Charney.

U.S. Bankruptcy Judge Brendan Shannon in Wilmington, Delaware must decide if the hedge fund-backed plan, which has the backing of a committee of the company's creditors, is fair and feasible.

Charney has filed the main objection, and the company's controversial founder plans to call himself as a witness, according to court documents.

As Wednesday's hearing approached, both sides continued to jostle through court filings to strengthen their position.

Lawyers for American Apparel said in a letter to the court the proposed takeover bid involving Charney and investors Hagan Capital Group and Silver Creek Capital Partners was now "dead" based on a deposition by lead investor Chad Hagan.

Hagan told Reuters on Tuesday the bid, which contemplates re-installing Charney as chief executive, is still alive, even though American Apparel failed to provide his group with important documents such as its quarterly accounts.

In the midst of the tussle, retail analyst Burt Flickinger said the best option for American Apparel, whose stock is trading at 3 cents, was quick court approval of the current bankruptcy plan given the deteriorating retail environment.

"Every day and week of delay adds viability risk to the plan," said Flickinger, who is managing director of retail consultancy Strategic Resource Group.

American Apparel, which has not been profitable since 2009, joins other teen-focused retailers including Wet Seal and Body Central Corp that have struggled with changing tastes.

Charney founded American Apparel in 1989, but was fired in December for allegedly misusing company funds and failing to stop a subordinate from defaming former employees. He has denied the allegations.
 

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