American Apparel Officially Files for Bankruptcy Protection

A few months back, we warned you that the store we love to hate (but actually love), American Apparel, might not be around for much longer.

In the wake of declining business, in August, the downtown LA success story from times past admitted that it “may not have sufficient liquidity necessary to sustain operations for the next twelve months,” and that investors could suffer significant losses on their investments.

Fast forward to this morning, and American Apparel has filed for Chapter 11 bankruptcy protection.

It seems the once go-to for everything from weekend basics to Halloween costumes has been fighting to stay relevant for far too long. The company has lost money every year since 2010 as competition has increased for those beloved basics.

Also added in the mix is the fact that the company is currently locked in a dramatic legal battle with ousted founder and former CEO, Dov Charney, who is suing American Apparel after he was fired in December following allegations that he violated its sexual harassment policy. Charney denies these charges and has also filed a $30 million defamation lawsuit against Standard General, one of the company’s biggest shareholders.

The company said that its US retail stores will continue to operate, as will wholesale and US manufacturing. International stores will not be affected – so you don’t need to run out on your lunch break to stock of on those white tees or bodysuits.

American Apparel also said that it will pay all of its suppliers in full under normal terms for goods and services provided on or after bankruptcy filing on today (Monday, October 5).

Their restructuring plan – which has been approved by American Apparel’s board – will eliminate more than $200 million bonds held by the company in exchange for equity interests. Lenders will provide about $90 million in debtor-in-possession financing. The plan is expected to be completed in about six months, but still needs approval from the U.S. Bankruptcy Court for the District of Delaware.

As of September 30, American Apparel had approximately 227 retail stores in 19 countries. We can, however, probably expect this number to begin to lower at some point (and with each closing store, a little piece of our youth will die with it). With news of the filing, shares of American Apparel Inc. plunged more than 24 per cent before the opening bell Monday.

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