Dov Charney may have already gotten his way in successfully slowing American Apparel Inc.’s aims to expedite its bankruptcy.
Whether he succeeds in getting back into the company now comes down to a judge.
The former American Apparel chief executive officer managed to slip in an objection Monday evening in a Delaware bankruptcy court on the company’s bid to secure its reorganization plan. American Apparel in late December asked the court to extend its period of exclusivity to give it the sole right to file a reorganization plan, a move that would block any competing strategies from coming into play. Charney, today, sought approval for an expedited teleconference hearing on the matter, according to court documents.
At stake is the future of American Apparel and who will ultimately control it.
“The bankruptcy court might consider it because at the end of the day the bankruptcy court is a court of equity, meaning there are obviously rules and deadlines, but there are times when the bankruptcy court will be flexible if it appears there is a credible objection out there,” said Caroline Djang, a partner in the Costa Mesa, Calif., office of Rutan & Tucker.
Djang, who is not involved in the American Apparel case, added the judge’s responsibility is to do what’s equitable for the most creditors.
A $300 million deal for American Apparel, announced Monday, could derail the company’s plans for exiting bankruptcy. The bid involves Hagan Capital Group and Silver Creek Partners in collaboration with Charney. The group said their bid is better for creditors by offering “a recovery of 10 times that under the debtor’s plan.” The bid, revised from a Dec. 29 $200 million offering, assigns a 15-times purchase multiple based on the last publicly disclosed adjusted earnings before interest, taxes, depreciation and amortization figure from American Apparel.
“Will it be successful? It’s in the hands of the gods but it might be a compromise,” Charney told WWD. “Will we be able to delay confirmation? We’ll see…this is a little bit of a sword fight.”
Charney in his objection alleged the company and its adviser have gone out of their way to block alternative restructuring plans from entering the mix in what he alleged to be a distaste for him.
Charney was dismissed from American Apparel in late 2014 following an internal investigation that found him to be in violation of his employment agreement, according to the company. Charney has heavily criticized the investigation and called it out as part of an elaborate scheme to rid the company of him — accusations he’s alleged now in numerous lawsuits flung at the company, New York hedge fund Standard General and current and former executives.
“At virtually every turn in the process, it has been evident that the company’s hostility toward…Mr. Charney renders it incapable as a practical matter of genuinely exploring a Charney-involved transaction,” Monday’s objection said. “It is probably also the case that current management is conflicted [by] the old-fashioned way: the alternative offer poses risks of some management shake-up.”
It is expected Charney would come back to lead American Apparel if the Hagan-Silver Creek deal is accepted. Whether that is as ceo is yet to be determined.
Charney’s also been in talks with multiple industry executives who would join the senior management team should the offer be accepted. While the names of those individuals have not been disclosed, they are described in the offer letter as “senior industry veterans who are highly regarded and credible in the industry with exceptional track records.” Details about the rest of the strategy to improve the business were not outlined in the latest offer letter, other than to say manufacturing is expected to remain in the Los Angeles area.
Meanwhile, American Apparel continues moving towards an exit from bankruptcy proceedings, disclosing Monday that a proposed amended reorganization plan received the OK from all voting classes in a deal that sets aside $2.5 million to unsecured creditors. The company said it “remains focused on pursuing the completion of its financial restructuring following its planned bankruptcy court hearing at the end of this month.”
A hearing has been set for Jan. 20, although Charney’s motion today asks the court to postpone that date and push up the scheduling of a teleconference to review his requests.
Separately, a judge today approved the sale of Oak NYC, the more fashion-forward brand acquired by American Apparel in 2013, back to founders Jeff Madalena and Louis Terline.