On Jan. 25, a U.S. bankruptcy judge approved American Apparel's restructuring plan, giving the clothing retailer a second shot at success in the marketplace.
The clothing company filed for bankruptcy protection under a Chapter 11 in October, blaming a nosedive in sales, a poor fashion sense, and legal hurdles over former CEO Dov Charney's alleged sexual misconduct for its insolvency.
To get the company afloat, a group of hedge funds, including Monarch Capital, will be injecting capital into the company before and during the bankruptcy.
"This is a new day for the company, and a positive outcome for our customers, vendors and employees," said American Apparel's CEO Paula Schneider in a statement.
Charney's Efforts to Regain Control Fail
In 2014, Charney was fired after allegations of sexual misconduct came to light. He managed to coordinate a bid from competing investors to require the company. He want so far as to testify at the bankruptcy hearing in January, which is when he criticized the management team that took over after his departure.
Charney's attempts proved unsuccessful; the company's creditors had previously voted and approved American Apparel's debt-reorganization plan, and the judge approved the proposal.
The end result: a debt-for-equity conversion where the company's secured lenders will be exchanging $230 million of debt for ownership of the retailer. They're reportedly going to provide $40 million in financing and another $40 million in the form of a secured loan so the company can complete its Chapter 11 plan.
American Apparel, which is famous for manufacturing its clothing in the United States, fell deep into debt when agile competitors such as Forever 21 and H&M drew away Millennial customers due to affordable, more fashionable pieces.
As of January 2016, the retailer had 218 stores in 19 countries, employing over 8,000 people. The company expects to close at least 13 stores while it restructures.
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