American Apparel and Charney Testify in Bankruptcy Court

American Apparel founder Dov Charney, current Chief Executive Office Paula Schneider and others vying for a stake in the future of the Los Angeles–based apparel manufacturer and retailer recently appeared before U.S. Bankruptcy Judge Brendan Shannon in Wilmington, Del.

Shannon is tasked with deciding whether to approve a Chapter 11 exit plan put forward by American Apparel or leave the door open to a plan backed by Charney, who was ousted as CEO in 2014.

Charney and Chad Hagan of Hagan Capital Group, one of the two investment companies Charney has tapped to help him regain control of American Apparel, testified in court on Jan. 21, according to Reuters. Schneider testified on Jan. 20.

Schneider and the American Apparel board have put together a plan to emerge from bankruptcy with the help of investment firms Standard General and Monarch Alternative Capital. American Apparel’s board has already rejected the Charney-backed bid in favor of the company’s own pre-packaged bankruptcy filing plan, which it proposed when it filed for bankruptcy protection on Oct. 5.

Under the pre-packaged organization plan, the secured lenders would convert $200 million in bonds into equity in the reorganized company. The secured lenders have already provided $90 million in debtor-in-possession financing as well as $70 million in new liquidity.

The pre-packaged organization plan would reduce American Apparel’s debt to $120 million from $311 million, and its annual interest expenses would fall by $24 million.

Charney, together with Hagen Capital and Silver Creek Capital Partners, has proposed a $300 million bid to acquire the clothing company. The proposal includes $130 million from the investor group with $90 million of new stock and $40 million from a term loan. American Apparel would exit bankruptcy with $160 million in cash and new equity and a $50 million credit line. It also would have a cushion of $90 million in equity, compared with about $75 million under the earlier debtor plan.

According to Reuters, the bankrutcy court will make a decision on Jan 25.