A judge on Monday approved American Apparel’s plan to exit bankruptcy, wiping out the prospects for an alternative proposal that would have put ousted chief executive Dov Charney back at the helm of the struggling clothing company.
Judge Brendan Shannon said in Delaware Bankruptcy Court that American Apparel’s reorganization plan satisfied the court’s requirements by winning stakeholder support and providing enough liquidity to reboot the business.
A competing takeover proposal from Hagan Capital Group offering $300 million did not present a “meaningful” alternative, he said, because senior creditors had indicated they would not support it.
Shannon’s decision in the Chapter 11 case came after two days of testimony late last week during which Charney spoke of his devotion to the downtown Los Angeles company known for its colorful T-shirts and racy ads that he founded in 1989. The controversial executive, fired for alleged misconduct in 2014, said that American Apparel had thwarted his attempts to return.
“There was no chance I could ever have a fair shot,” Charney told the judge.
But Shannon said he could only examine the plan put forth by American Apparel.
“I have no doubt that he wants only the best for American Apparel, and especially for its thousands of employees, and that he firmly and honestly believes that the best way to rejuvenate and grow the company is to place him back at the helm,” said Shannon. “This proceeding is not about the circumstances or even the correctness of Mr. Charney’s termination.”
American Apparel’s reorganization will take the company private, leaving stockholders, including Charney, empty-handed.
Chief Executive Paula Schneider said the company could now work to “drive revenue” with new products and innovative marketing.
Charney said he was disappointed in the ruling’s bearing on American Apparel’s future. “I don’t believe the current management has the talent to bring it back to health,” Charney told the Business Journal in an email.