American Apparel is reported to have filed for bankruptcy protection with the U.S. courts early Monday. The business was said to have suffered mounting debts, a huge fall in sales, internal conflict and lawsuits.
The controversial fashion line is popularly known for its provocative advertising campaigns, skin-tight clothing items, and retro designs-- all of which are made in homeland America, which further set them apart from other retail brands.
As reported in New York Times, the petition which was approved by the board, was filed in federal bankruptcy court in Delaware. This action was followed by a deal among American Apparel's secured lenders where they reduce company's debt in exchange for company shares. The company owes nearly $400 million but only has $200 million in assets. The bankruptcy is reported to clear almost $200 million of the company's bonds, giving ownership stake in the company to some of its lenders in return.
The deal also includes extra financing from participating bondholders. This in turn may enable American Apparel to keep operations in Los Angeles and in thier other 130 stores in the United States according to reports.
Surprisingly, there was no announcement of layoffs as other companies declaring bankruptcy may actually do. American Apparel's overseas operations are reported to keep its operations, unaffected by the restructuring which the retailer is said to complete within six months.
With the announcement of American Apparel's bankruptcy, this means a big loss for its stakeholders including former CEO Dov Charney. Charney's stake in the company is reported to be worth $8.2 million as of Friday. Charney founded the company in 1989 when he was still studying in college. In December 2014, Charney was fired from his position in 2014 following sexual harassment lawsuits and low share prices. He denied the allegations and filed wrongful termination suit against the company.
Admittedly, Charney's lawsuits may have contributed to American Apparel's filing of bankruptcy; nevertheless, it was blamed to more basic issues that are faced by most retailers. The company has grown too big in a small span of time, taking in too much debt in the process.
New CEO Paula Schneider hopes that reorganization can bring American Apparel to where it used to be. The bankruptcy proceedings would temporarily delay the numerous lawsuits giving time for the company to start its reorganization and launch is new marketing plan.
