Dov Charney is way more screwed than American Apparel
"I, like the many former stockholders, will most likely be left with nothing."
BY MATT MILLER | Jan 28, 2016 | Fashion
American Apparel is by no means out of the woods yet, but its founder Dov Charney, the alleged sexual harasser who misused company funds, is in far worse shape. The Los Angeles Times is reporting that American Apparel Inc—the retailer famous for domestic manufacturing and NSFW clothing ads—will exit bankruptcy proceedings without Charney clinging to it like a creepy remora fish with a penchant for thong bodysuits.
A US Bankruptcy Court has approved the company's plan to reorganize and repay its creditors by going private and granting control to bondholders, which will effectively render Charney's large ownership stake—about 40 percent of the brand's stock—worthless.
"I am obviously disappointed by the judge's decision to confirm the debtors' reorganization plan and hand ownership of American Apparel to its bondholders," Charney said in a statement. "At the end of this saga, I, like the many former stockholders, will most likely be left with nothing. Despite that, what gives me great optimism are the things I possess that can't be stolen by a predatory hedge fund - my ideas, values, drive, authenticity, integrity and my passion."
American Apparel has been in free fall for years, and filed for bankruptcy in October after it hadn't posted a net annual profit since 2009. The company fired Charney in 2014, accusing him of misusing company funds and sexually harassing his employees. Charney has denied the accusations, and joined forces with Hagan Capital Group and Silver Creek Capital in a bid to return to the AA fold, one that was ultimately shot down.
The plan approved this week will cut about SGD286 million (translated price) in debt and allow American Apparel to reduce costs and refocus design efforts while being taken over by its lenders, including Monarch Alternative Capital, Coliseum Capital, and Goldman Sachs Asset Management. The revised focus will give the company the chance to close under-performing stores, while new CEO Paula Schneider looks to rebuild its top creative positions in the wake of the Charney fallout.
"When you don't have any money to buy yarn or buy marketing you are sort of hamstrung," Schneider told the LA Times. "Now we can invest in the company. Before we were saving all of our money to make the bond payments... It's not an overnight, 'Wow, we are great!'"
While this marks an early escape from bankruptcy proceedings for American Apparel, the brand has further trials ahead, like the threat of a bitter battle with Charney, who plans to pursue litigation.
"This outcome is one that I have been working tirelessly to avoid for nearly two years in an effort to protect value for all of the company's various stakeholders," Charney said. "Now all stockholders will have their shares and value extinguished."
Damn. Well, at least the brand maintains its commitment to domestic manufacturing. Let's call it a silver lining, and cross our collective fingers that the folks in charge manage to keep things from going off the rails this time.
First published in Esquire US.