The controversial US clothing retailer with stores around the world has filed for chapter 11 bankruptcy in Los Angeles, an insolvency procedure similar to administration. The retailer has arranged a restructuring deal with 95% of its creditors, enabling the company’s debt of $300 million to be reduced to $135 million. Bonds will be written off in exchange for equity in the company. Part of the deal was to file a formal chapter 11. Chapter 11 is most similar to administration in the UK although there are a few different features.
The company can still keep control if they choose to act as trustee before the court. However, this is a very complex legal process so most companies will appoint a trustee to oversee the procedure. In the UK, the appointed administrators take control of the company and consider all available options for the business, whether that is a sale or a restructuring deal with creditors. American Apparel has received negative publicity over the last few years from sexually explicit advertisements and questionable clothes designs.
The founder and CEO of the retailer, Dov Charney, was fired last year due to ‘sexual misconduct’. There had been a string of lawsuits made against him by employees. It is hoped the restructuring deal and new management will turn the company’s fortunes around.