American Apparel Files Chapter 11 Bankruptcy

by San Antonio Attorney

American Apparel, known as a cool alternative to the mass clothing retailers, filed for Chapter 11 bankruptcy early Monday.  The company has been struggling because of enormous debts, a steep decline in sales, employee disputes and a legal battle with its former CEO Dov Charney.

The company sought bankruptcy protection in the Delaware federal bankruptcy court.  The move came after an agreement with most of the retailer’s secured lenders to decrease debt through a debt-for-equity conversion process, where bondholders exchange their debt for stocks in the company.

There was no mention of layoff in the filing.  The overseas operations of American Apparel are not affected by the reorganization, which is expected to be concluded within 6 months.

American Apparel is just one of many retailers that have succumbed to rigorous market competition.  Some experts say that there are simply too many brands and stores in the United States.  They are running after consumer spending that is becoming sluggish.

American Apparel’s bankruptcy filing was not surprising since the retailer posted major losses in the past quarterly reports.  In the second quarter, the sales dropped 17 percent compared with last year, a downswing caused by a lack of fresh clothing designs. American Apparel’s deficits over the past five years have peaked $340 million, and it lost an additional $45 million this year.

Bankruptcy proceedings would halt a number of legal actions against the American Apparel, buying its management some time to organize the retailer’s financial problems.  The company had been developing a turnaround strategy that involved updating its clothing lineup, overhauling its logistics and toning down its risky advertising approach.

According to the company’s new Chief Executive Paula Schneider, American Apparel will retain manufacturing jobs in the U.S. She said speculations that the retailer would relocate its factory jobs to Mexico or El Salvador were not true.

Bankruptcy can help a struggling business to keep its doors open.  If you need bankruptcy advice for your business or for yourself,  San Antonio Attorneys can help you make informed decision for how to proceed.

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