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Company files for Chapter 11 bankruptcy as part of plan to restructure and recover

When a company encounters serious financial troubles, for whatever reason, bankruptcy is never a pleasant option to consider. When other means of financial relief have been attempted and have failed, though, bankruptcy can in some cases provide a failing company the opportunity to restructure and move ahead with a working plan. That seems to be what is going on so far with American Apparel, the clothing manufacturer and designer which has made a name for itself with its controversial advertising and the legal problems surrounding its founder Dov Charney.

The company filed for Chapter 11 bankruptcy at the beginning of the month after a deal was struck with most of the company’s secured lenders to exchange the ability to collect debt for company stock. The agreement is part of a plan that is supposed to allow the company to keep its manufacturing arm in Los Angeles open, as well as its retail stores, of which there are 130 across the country.

The bankruptcy filing, it seems, will not impact the company’s current staffing, but will remove ownership from current shareholders and put the company under the control of its creditors. According to sources, the company’s filling comes after significant financial struggles, including burdensome debts, a decline in sales, and a drawn out legal battle with Charney.

One of the benefits the bankruptcy process will afford the company is a temporary delay of litigation through an automatic stay order. This, it is said, will give the company some time to get itself in order and ensure the bankruptcy process works with the company’s goals moving forward.

It remains to be seen how successful the company’s reorganization will be, but it is clear that serious efforts are being made to restructure for a successful recovery. Any business that finds itself in a downward spiral and considering bankruptcy, of course, should always work with experienced legal counsel to ensure the company has guidance moving forward and strong legal advocacy to protect its rights.

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