American Apparel May Soon File Bankruptcy

American Apparel may soon need to file bankruptcy if the company cannot come up with the money to pay down a $15.4m bond payment due in October.

The company released a worrying statement in July saying, “Even if American Apparel increases revenue and cuts costs, there can be no guarantee that the company will have sufficient financing commitments to meet funding requirements for the next 12 months without raising additional capital. There can be no guarantee that it will be able to raise such additional capital.”

The company was in a similar predicament in April, but managed to pay the bond payment after securing a loan from hedge fund backer Standard General to make the twice-a-year bond payment.

According to the NY Post, the company has likely less than $10 million on hand. The company considered issuing more shares to raise cash, but shareholders refused the company’s proposal.

American Apparel has dealt with tremendous controversy after the company chose to file CEO Dov Charney in 2014. The company claimed Charney filmed himself in sex acts with models and employees, kept the videos on a company server, and used ethnic slurs in company emails.

Charney responded by challenging the board’s decision and filing a $40 million lawsuit against the company claiming wrongful termination. He later filed a separate $30 million lawsuit over defamation.

Interestingly, Charney remains the largest shareholder in the company. However, Standard General controls his voting rights. Some speculate Charney hopes to buy the company back should it fall into bankruptcy.

Volks Anwalt
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