Battle over American Apparel reigns reaches the courtnews

Things are getting tangled for American Apparel, as the battle between current management and former CEO and founder fight over the company’s control at the court. After rejecting Don Charney 300 million dollar offer, the company’s management is determined to exit the bankruptcy and implement its turnaround plan.

After American Apparel declined the takeover bid posed barely two weeks ago by the company’s former CEO and founder, Don Charney, the apparel retailer’s chief executive told a bankruptcy judge on Wednesday the retailer could become embroiled in drawn-out litigation if it accepted Charney’s takeover bid.

After seeking bankruptcy protection under the Chapter 11 in October, the company is seeking court approval of a bankruptcy exit plan backed by a group of hedge funds.

Umpteenth battle between American Apparel and Charney: whose bid is best?

Meanwhile, Charney has objected and is trying to convince the judge a takeover backed by competing investment funds, Hagan Capital Group and Silver Creek Capital Partners, is a better deal.

However, lawyers for American Apparel said in a letter to the court the proposed takeover bid involving Charney and investors Hagan Capital Group and Silver Creek Capital Partners was now “dead” based on a deposition by lead investor Chad Hagan, reports ‘PE HUB’.

Hagan insisted and said in an interview with Reuters on Tuesday the bid, which contemplates re-installing Charney as chief executive, is still alive, even though American Apparel failed to provide his group with important documents such as its quarterly accounts.

Now, the ball in the court of U.S. Bankruptcy Judge Brendan Shannon in Wilmington, Delaware, who must decide if the hedge fund-backed plan, which has the support of a committee of the company's creditors, is fair and feasible.

In this regard, CEO Paula Schneider said the support of hedge funds that hold its bonds, including Monarch Alternative Capital, was the most critical factor in determining the best way to end the bankruptcy. She said the support of American Apparel's bondholders was paramount. "The affiliation with Dov Charney was not a problem," Schneider testified.

Furthermore, Schneider told the court that when she joined a year ago, she found a company without cash, long-term planning or proper structure. "There was no org chart. Seventy people told me they had reported to Dov Charney."

It is worth recalling that American Apparel has not been profitable since 2009, having the company blamed its bankruptcy in part on the cost of lawsuits linked to Charney's volatile tenure at the helm.