American Apparel files for second bankruptcy less than a year after court protection ended

14 November 2016

American Apparel Inc has filed for bankruptcy within a year of ending its stint under court protection, and agreed to the sale of the brand to Gildan Activewear Inc, a Canadian maker of T-shirts and underwear, for about $66 million.

The Montreal-based Gildan said in a statement that American Apparel had filed for protection from creditors. Gildan said it was not buying any stores. 

In april American Apparel rejected a $300-million takeover bid from a group of investors backing the return of the company's founder, Dov Charney, a Canadian-born artist and industrialist (See: Bankrupt American Apparel rejects $300-mn takeover bid from investor group) and in August hired investment bank Houlihan Lokey Inc to explore a sale (US teen clothing retailer American Apparel explores sale)

As malls experience slowing sales with more US citizens shopping online, many US retailers are struggling and clothing companies have been hit particularly hard. The last two years had seen Aeropostale Inc, Quiksilver Inc and Pacific Sunwear of California Inc file for bankruptcy.

In 2014, Dov Charney, founder of American Apparel was fired from the company he founded, over allegations of misconduct. He fought hard to regain control of the business he started as a college student, but failed, amidst calls from its executive to reconsider Charney's ouster (American Apparel executives urge board to reconsider CEO Dov Charney's sacking)

The company's performance continued to slide and it filed for bankruptcy in October 2015.

The company emerged from bankruptcy in February after bondholders led by Monarch Capital took over, but results did not improve after the company refocused on basic items like T-shirts and skirts, under a turnaround plan.

But only months later, chief executive office, Paula Schneider who took over with the exit of Charney, resigned in September. 

American Apparel is allowed to hold an auction of its asset under the bankruptcy filing with Gildan's proposed acquisition constituting the initial bid.

"Gildan has asked for the opportunity to maintain certain of our manufacturing, distribution and warehouse operations in and around Los Angeles," American Apparel chairman Bradley Scher said in a letter to employees, a copy of which was obtained by Reuters.

During the competitive sale process, American Apparel would run its business as usual in the US and this would have no noticeable effect on day-to-day operations in the US, Scher said in the letter.

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