In a bid to save itself, American Apparel has filed for bankruptcy early this week, under the Chapter 11 petition in Delaware. The company which was well known for manufacturing bodysuits and leggings has been marred with controversies for quite a few years, apart from fighting several lengthy legal battles.
In the second quarter sales since last year, American Apparel saw a drastic 17 per cent drop, further sealing the fate of the company. The company has been embroiled in numerous nasty PR scandals and if media reports are to be believed, it is now roughly $300 million in debt.
The Los Angeles-based company has just filed the bankruptcy and it hasn’t been approved yet. The company has also made a deal with the company’s secured lenders so that the brand’s debt may be shrunk through a debt-for-equity conversion process. This means that the bondholders will get stock shares in exchange of the money owed to the company. This will also means that the creditors will have control over the company. The debt-for-equity conversion will thus ensure that, for the time being, all the 130 stores will remain open and manufacturing will also proceed normally. This deal will also prevent any immediate layoffs.
The bankruptcy petition will also ensure that all the lawsuits that are pending against American Apparel will be on hold as of now. The cases against the ousted CEO Dov Charney will also be on hold.
The company has been reeling under financial stress since 2009. The company hasn’t reported profit since then. Moreover the company has been repeatedly in the news for all the wrong reasons, such as tackling with offensive mini skirt ads, sexual harassment cases against Charney and models publicly referencing to “Instagram hoes”.
The acting CEO of American Apparel Paula Schneider said in a press release that, “this restructuring will enable American Apparel to become a stronger, more vibrant company."
Schneider also said that “by improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create captivating new marketing campaigns that will help drive our business forward.”