According to court documents, American Apparel fashion chain will soon have its most profitable years ever, if the company manages to achieve the bankruptcy turnaround it aims for.

Heavy losses bog down the company’s growth

The company, known for its sexually charged advertising campaigns, in a filing with the U.S. Bankruptcy Court in Wilmington stated that it would return to profit in 2018, its first money-making year since 2009. The brand had made repeated losses and its sales fell by 17 per cent in the second half of 2014. A lack of new styles was cited as a cause for this. The brand’s losses through the last five years have topped $340 million, and it has lost $45 million more in 2015.

The brand also runs the risk of being de-listed according to the New York Stock Exchange. It stated that the company’s financial condition is so critical that whether it would manage to stay in the business was questionable.

Dov Charney, the founder was fired as Chief Executive last year. In the court filing, the company stated that the ongoing legal battles with him, is one the risks to its future. Charney is accused by the brand of orchestrating protests at the headquarters and said he could undermine the ability to hire staff and executives.

American Apparel in turn, assured suppliers and other creditors that though they were going to get hardly anything for what the company owes them, they were key to the future.

The company filed for Chapter 11 bankruptcy to lower crushing interest costs and not to end contracts with suppliers and landlords, Scott Greenberg, one of the company's bankruptcy attorneys told the gathering of the brand’s creditors. He said that these relationships were critical to them.

The company’s unsecured creditors, who are collectively owed about $145 million, will receive $1 million to split among them, according to the company’s court filings. The creditors gathered in Wilmington, Delaware to form an official committee to represent their interests in the bankruptcy.

Surrounded by controversy

For years, American Apparel has been chased by changing spending habits among teen shoppers while also being embroiled in litigation related to Charney. Last year, Charney was fired for allegations of sexual harassment and potential misconduct after internal investigation.

However, an attorney for him said that he was never found guilty of committing sexual harassment. Keith Fink, in a statement said that Charney was fired as he wouldn't surrender control of his company.

The company creditors’ meeting was not attended by Charney, though he is listed among the creditors. By eliminating $200 million in bonds, the company plans to stabilise its finances by granting the bondholders a group of hedge funds, and ownership of the company.

American Apparel’s current shareholders could be wiped out due to the bankruptcy including Charney. His stake in the retailer, which he founded in 1989, was worth about $8.2 million until a few days ago. Now, the creditors would be in full control, including Standard General.

www.americanapparel.net