After listening to two days of arguments last week, a DE judge ruled today against American Apparel founder Dov Charney’s attempts to regain control of the company, according to the Los Angeles Times.
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Creditors approved the plan unanimously two weeks ago.
Senior lenders including Monarch Alternative Capital LP will trade their debt for control of the retailer, reducing its liabilities by about US$200 million.
The bankrupt retailer has not been profitable since 2009, thus it filed its bankruptcy in October past year.
In December, Charney, Hagan Capital Group and Silver Creek Capital Partners presented a $300 million takeover, which they said put a richer value on the company.
The decision wipes out all American Apparel shareholders, including Charney who was the company’s single biggest investor.
She further added: “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 company’s secured lenders will exchange $230 million in debt for ownership 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.
American Apparel is known for its clothing being made in the United States.
The company has blamed its bankruptcy in part on millions of dollars spent settling legal claims, including for sexual harassment, against Charney.
Charney, who had been chief executive until he was forced out in a 2014 boardroom coup, had been trying to buy the company out of bankruptcy. “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”.
Mr. Charney said Monday that he was disappointed in the judge’s decision to sign off American Apparel’s plan and expressed doubt that the retailer’s management can turn around the company. But Shannon wasn’t swayed by it, saying he found no “meaningful alternative” to the company’s preferred plan.
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The new CEO of the company, Paula Schneider has stated that the judge’s ruling is extremely beneficial for all of the company’s employees and customers, as well as the business itself.
