American Apparel has been approved for a restructuring plan by a U.S. bankruptcy judge . This gives the retail company a new chance on building a sustainable business.
Back in October the company filed for Chapter 11 bankruptcy protection, the reason is a decline in sales, its clothes and legal battles over former CEO Dove Charney’s alleged sexual misconduct.
American Apparel will be run by a group of hedge funds companies which include Standard General and Monarch Capital. The companies gave money before and during the bankruptcy case.
"This is a new day for the company, and a positive outcome for our customers, vendors and employees," American Apparel CEO Paula Schneider said in a statement. "With this milestone behind us, we are now fully focused on executing our turnaround strategy as we continue working to drive revenue across our wholesale, retail and e-commerce businesses."
The CEO was fired back in 2014 after dealing with several allegations of sexual misconduct. Charney managed to coordinate a bid from a group of competing investors in order to regain control of the company. This month Chaney testified at a bankruptcy hearing, criticizing the management team that succeeded him and persuading the company to consider his acquisition bid.
The company’s debt-cutting plan of reorganization was already voted to approve by American Apparel creditors and authorized by a judge.
The company’s secured lenders will exchange $230 million in debt for ownership of the company. In order to help the company exit Chapter 11 bankruptcy they will give $40 million and provide an addition $40 million secured loan.
Charney wrote a 1,500-word response in which he described how he was annoyed at American Apparel for allegedly engaging in a “scorched-earth campaign” to block his bid to acquire back the control of the company. He believes that the company was already messing up when he got fired.
"While outside observers might not yet appreciate it, I believe the path being followed by the company’s management is a road to ruin," Charney said. "The sad reality is that American Apparel, the largest garment manufacturer in the United States, will not survive at this pace and I don’t believe the current management has the talent to bring it back to health."
American Apparel is known for its clothing being made in the United States. The company has been failing in recent years due to competition with other retailers like H&M, and Forever 21.
American Apparel currently has 8,700 employees with 218 stores in 19 countries. Its restructuring plan includes the closure of 13 stores.
The clothing retailer has been known to consumers for its edgy and sexually charged advertisements and store displays. American Apparel stop being as popular when other retails sold the same goods and swim suits were being manufactured.
American Apparel’s new CEO Schneider is planning to fix the company’s image through new marketing, products and store design. Charney is being a new stage in his career, despite being broke.
"At the end of this saga, I like the many former stockholders, will most likely be left with nothing," Charney said. "Despite that, what gives me great optimism are the things I possess that can’t be stolen by a predatory hedge fund — my ideas, values, drive and my passion. To that end I ask that my supporters stay tuned.”