Charney Assails `Faithless' American Apparel Board in Court

Updated on
  • Retailer rejected takeover offer that would reinstall Charney
  • Ex-CEO says company is suffering without him, risking jobs

Dov Charney accused the board of American Apparel Inc. and its investors of conspiring to kick him out of the clothing company he founded and keep him from retaking control.

Charney took the witness stand Thursday in Delaware bankruptcy court in an effort to derail the retailer’s reorganization plan in favor of one that would put him back in charge. American Apparel filed for creditor protection in October after years of losses and a feud with Charney, who was ousted from the company in 2014 for alleged misconduct. 

Charney began his testimony by describing how he built the business known for its racy ads, made-in-U.S.A. clothing and T-shirt slogans that championed causes such as immigrants’ rights. He quickly moved on to attack the investors and company insiders who he claimed moved to fire him so they could take over.

“It was very hard to get past a board that was completely faithless,” Charney said. 

U.S. Bankruptcy Judge Brendan Shannon heard two days of testimony in Wilmington this week to help him decide whether to approve American Apparel’s reorganization plan. He said he will rule Jan. 25.

Dueling Offers

Under the company’s plan, senior lenders including Monarch Alternative Capital LP will trade their debt for control of the retailer, reducing its liabilities by about $200 million. Charney and his backers have claimed that the American Apparel board rejected their $320 million takeover offer simply to keep him from retaking control of the clothing chain.

“There was no chance that I could ever have a fair shot at bidding,” Charney told the judge Thursday.

For American Apparel to prevail, it must show the judge that its proposal is feasible, in the best interest of creditors and put together in good faith. For Charney to win, he must first get Shannon to reject the company’s proposal. American Apparel would then need to try to force senior lenders to accept a competing offer from Charney’s backers Hagan Capital Group and Silver Creek Capital Partners.

The board rejected the Charney group’s offer because it would add too much debt and because lenders opposed it, current CEO Paula Schneider testified Wednesday.

Judge Interrupts

Shannon interrupted Charney’s testimony to let his lawyers know that many of his allegations may not be relevant. Steven K. Kortanek, a lawyer for Charney, said the goal was to show American Apparel was so biased against his client -- and any takeover effort involving him -- that its plan should be rejected.

Charney was allowed to continue, and American Apparel’s lawyers didn’t try to stop him, instead saying the company disagreed with much of what he said.

Charney named other alleged culprits in his company’s demise. He blamed the media’s preoccupation with losses, rather than other financial measures. He also said some managers pushed projects he opposed. And he pointed to anti-immigrant “hysteria,” saying a raid by federal agents on a Los Angeles factory troubled his workforce.

“It was very emotional, we lost thousands of people,” he said.

Charney said the company is doing even worse without him, further threatening jobs. Sales are down since he left, he said.

“This relentless effort to remove me from the company or to prevent me from taking back control of the company, I think, is a scary prospect for the city of Los Angeles,” he said.

The case is In re American Apparel Inc., 15-12055, U.S. Bankruptcy Court, District of Delaware (Wilmington).

(Updates with timing of ruling in fifth paragraph.)
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