American Apparel files for bankruptcy

American ApparelAmerican Apparel, founded in 1989 and for years one of the most recognisable brands on the high street both sides of the Atlantic, has filed for voluntary bankruptcy protection on the back of a growing list of woes.

Within this filing, it intends to pay its suppliers in full under normal terms for goods and services provided.

This comes a year after the toppling of its founder, Dov Charney, on charges of violation of sexual harassment policies. He is currently embroiled in a fully fledged legal battle with American Apparel.

This comes as no surprise as for years he featured in headlines about sexually charged advertising and accusations of sexual harassment.

The company said Charney kept “tons of explicit texts, videos and photos stored on company servers. And they are downright disgusting”.

In its heyday potential employees were required to submit fully body photos to prevent unattractive people from being hired.

Charney has also filed a $30 million lawsuit against Standard General, one of the company’s biggest shareholders, for defamation.

The Los Angeles-based company has seen declining sales since 2010, leading to a series of steep losses.

“This restructuring will enable American Apparel to become a stronger, more vibrant company,” said CEO, Paula Schneider, in a statement.

A deal had been struck with most of American Apparel’s secured lenders to reduce its debt and it will continue business as normal without affecting customers or staff, according to the statement.

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

In August American Apparel, which makes its own brand-basic clothing in downtown Los Angeles and is known for its racy advertising, announced that net sales in the second quarter plunged nearly 18 per cent.

A spokesperson for the company said that its US retail stores as well as wholesale and US manufacturing will continue to operate and international stores will remain unaffected.

The plan will wipe out more than $200 million in bonds held by the retailer in exchange for equity interests. Lenders will provide about $90 million in debtor-in-possession financing.

American Apparel’s board has approved the restructuring plan, which is expected to be completed in about six months. It still needs approvals from the US Bankruptcy Court for the District of Delaware.

Shares of American Apparel Inc. plunged more than 24 per cent before the opening bell Monday.

American Apparel has about 227 retail stores in 19 countries.

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