CLOTHESTIME, CREDITORS REJECT ORTEGA BID TO FILE CHAPTER 11 REORGANIZATION PLAN
NEW YORK — The former chairman, chief executive officer, and co-founder of Clothestime Inc. wants to file his own reorganization plan to bail the juniors chain out of bankruptcy, but Clothestime and its creditors have rejected the offer.
John Ortega 2nd, who said in a statement that he resigned on Jan. 17 because he was advised that a liquidation was “inevitable,” claimed that the firm’s own reorganization plan provides no new capital, and that he would invest “significant new capital in the reorganized company in order to put it on a solid footing as it exits bankruptcy.”
If Ortega had known that the 333-unit chain, based in Anaheim, Calif., was not going liquidate, he would not have resigned, Ortega said in the statement. Ortega resigned along with Norman Abramson, president and chief operating officer.
Larry Gottlieb of Siegel, Sommers & Schwartz, counsel to the unsecured creditors committee, said the Clothestime creditors decided not to explore an alternative plan by Ortega mostly because of the chain’s shoddy performance under Ortega’s leadership.
“If you look at the abysmal performance of the company under Ortega’s leadership, you would understand why the committee thinks he should not be leading this company,” Gottlieb said.
Ortega could not be reached for comment Thursday.
David Sejpal, Clothestime’s chairman, ceo and president, said the company and its creditors committee continue to own the exclusive right to file its own plan of reorganization, and aims to emerge from bankruptcy proceedings by mid-summer. Sejpal had been vice president and chief financial officer.
The company’s plan, filed in California bankruptcy court on March 21, would pay unsecured creditors seven cents on the dollar in cash plus 75 percent of the stock in the reorganized juniors chain. Current shareholders would be wiped out.
In the year ended Jan. 31, Clothestime cut its operating loss to $14.1 million from $31 million and trimmed the net loss to $31.6 million from $43 million. Sales fell 36.6 percent to $195.2 million, primarily reflecting the closing of about 200 stores last year.