Teen clothing retailer American Apparel has filed for Chapter 11 bankruptcy protection. As a result, ousted founder and CEO Dov Charney will lose all his stake in the company.
The Los Angeles-based company has not made a profit since 2009 due to intense competition, a change in spending patterns, and company controversy.
American Apparel will continue to operate normally under a restructuring deal reached with secured lenders, Reuters reported. The company hopes to cut its debt from $300 million to $135 million by eliminating more than $200 million of bonds in exchange for equity.
The company has been in much need of cash. In July, the company disclosed it was running short on cash to meet its obligations over the next 12 months, and planned to close stores to cut costs. The strategic move is part of a larger turnaround plan, led by new CEO Paula Schneider, who took over the company at the beginning of the year.
Charney was fired in December for alleged misconduct, including the misuse of funds and sexual misconduct with other employees. He and other shareholders will lose their stake in the company. Charney owned a 42 percent stake in American Apparel and was also the biggest creditor, holding $15 million in debt.
Charney has filed several lawsuits against the company, which will probably be delayed due to the bankruptcy.
-See this Reuters press release
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