Judge rejects Charney’s bid for American Apparel

The judge said the Bankruptcy Code forced him to reject Charney’s objection to American Apparel’s plan, in part because the board was turning the company over to the senior lenders through a traditional reorganization, not an auction.

Back in October the company filed for Chapter 11 bankruptcy protection, the reason is a decline in sales, its clothes and legal battles over former CEO Dove Charney’s alleged sexual misconduct. Upon acceptance, he would have been reinstated as Chief Exec. But on Monday US bankruptcy Judge Brendan Shannon, who was more convinced by the company’s debtors, rejected his bid. American Apparel’s bondholders include Standard General LP, Monarch Alternative Capital LP, Goldman Sachs Asset Management LP and Pentwater Capital Management LP.

But Shannon said he could only examine the plan put forth by American Apparel.

Charney had teamed up with private equity firms Hagan Capital Group and Silver Creek Capital Partners in a bid for the retailer that would have reinstalled American Apparel’s controversial founder as chief executive. “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”. “Removing him from the company’s board and leadership was a short sighted mistake, and we are seeing the results of this error unfold in the declining performance of the company today”.

Since his ouster in 2014, Charney has been looking for a way back in. In the classic debt-for-equity conversion, the organization’s lenders will trade their $230 million in debt for the ownership of the entity.

American Apparel is known for its clothing being made in the United States.

Charney would have returned as co-CEO under the $300 million plan.

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. He believes that the company was already messing up when he got fired.

“This is a new day for the company, and a positive outcome for our customers, vendors and employees”, she added.