American Apparel bankruptcy proceedings could be derailed by former chief Dov Charney


Chapter 11 bankruptcy proceedings at US clothing retailer American Apparel could be derailed, or delayed, by former chief executive Dov Charney.

Lawyers for Standard General, the New York hedge fund that could become one of the new owners of the brand, said Charney’s contact with employees and possible investors could “interfere with the company’s effort to reorganize and come out of bankruptcy successfully,” according to a Wall Street Journal report.

The hedge fund said it wants to continue pursuing a case alleging Charney has gone too far in his attempts to win back American Apparel. Standard General’s lawyer said a trial should take place by spring because the company’s restructuring has given the case added urgency.

Charney has also sued Standard General, accusing the hedge fund of misleading him and conspiring to push him out of the company.

American Apparel filed for Chapter 11 bankruptcy protection last week after reaching a deal with 95% of its secured lenders, including Standard General. The restructuring agreement will hand almost 100% control to its largest bondholders, has been created to cut its crippling debts and interest payments.

If approved by the Bankruptcy Court, it would also wipe out the value of shares held by Charney and other major American Apparel investors. He was fired last year after an investigation into alleged inappropriate behaviour and misuse of company funds. Charney has denied the allegations.

While bankruptcy experts say Charney has enough power to slow down the process in the bankruptcy court, the chances of him stopping it is slim.

Charney could object to the plan as a shareholder and argue that stockholders are owed some money. He could also vote no on the plan once the ballots go out for concerned parties to vote on the proposed restructuring deal.

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