Judge Rules in Favor of American Apparel Reorganization Plan
American Apparel, Los Angeles, will continue with its reorganization plan after U.S. Bankruptcy Judge Brendan Shannon ruled in favor of the company in court today.
This means that American Apparel will become a private company, and place nearly 100 percent of its control to its largest bondholders. Shareholders, including founder and former CEO Dov Charney, who contested his former company's plan, will be left with nothing.
According to the Los Angeles Times, Shannon said that the company's plan received "more than sufficient votes" from its creditors. He also ruled that the plan would wipe out debt, providing "modest but meaningful" payment to lenders, and would allow the company a line of credit to "ensure liquidity going forward."
He added that Charney's investor-backed takeover bid would have required approval from American Apparel's bondholders—the ones supporting the company's reorganization plan.
"The debtors pursued said confirmation of their plan and received approval from every stakeholder in this case," Shannon said in his ruling. "I will not second guess the debtors' decision."
Charney testified last week that American Apparel's board would make it "impossible" for him to ever take back control of his company, despite what he saw as a fair offer. Shannon asserted that he trusts that Charney wants what's best for the company and its employees, but he would not reconsider his ruling.
After filing Chapter 11 bankruptcy in October, American Apparel will look to make a profit in 2016 for the first time since 2009.