American Apparel has filed for bankruptcy

American Apparel announced plans to file for Chapter 11 bankruptcy late Sunday, ending mounting chatter surrounding the Los Angeles firm and its ability to continue operating.

For the last five years American Apparel have recorded five consecutive financial year losses that amount to $338 million.

American Apparel expects to complete the restructuring within about six months.

American Apparel was founded in 1989. “We are taking this step to keep jobs in the U.S. and preserve the ideals for which the company stands”.

“This reorganization will enable the company to implement a comprehensive transformation strategy to revitalize the business and brand, while keeping its production and operations in the USA”, American Apparel said in a statement. It still needs approvals from the bankruptcy court.

The agreement would provide the company with access to financing during and after its restructuring.

The controversial teenage brand, often in trouble in recent years for its overtly sexualised marketing drives, has said it has reached an agreement with 95 per cent of its lenders to reduce its substantial debts. Through a lawyer, Mr. Charney has in the past denied the allegations.

Charney has also filed a $30 million lawsuit against Standard General, one of the company’s biggest shareholders, for defamation. American Apparel hit a setback in 2009, when it was forced to lay off more than half its Los Angeles factory staff after a probe by immigration authorities found those workers weren’t authorised to be in the US The company had to replace them and train the new workers, which caused costs to soar and delayed shipments to stores.

According to the bankruptcy filing, the company will remain in business, with Paula Schneider, who took over as chief executive in early January, still heading the company.

Problems at the company started well before Mr Charney’s ouster.