American Apparel’s Bankruptcy Filing: Ousted CEO Is A Threat

American Apparel, Inc. filed for bankruptcy earlier this week. But on Friday, Oct. 9, the fashion brand is worried that ousted CEO Dov Charney will become a threat for the company as it attempts to restructure its business.

If he’s not stopped, then Charney’s alleged communications with American Apparel’s employees, potential investors, and others involved “will interfere with the company’s effort to reorganize and come out of bankruptcy successfully,” attorney Shannon Selden of Standard General said during a hearing at the Delaware Court of Chancery.

American Apparel’s employees are fighting back as well. A group of their workers were seen protesting outside the company’s headquarters in Los Angeles on Wednesday to protest the decision made by the current CEO, Paula Schneider, to declare bankruptcy. The protest was started by the union called the General Brotherhood of Workers of American Apparel. The organization that has over 2,800 workers said that they support Charney and vow to fight the brand against its “unfair labor practices.”

“The workers would like to see the return of American Apparel founder Dov Charney, the creative genius who built the company as a fashion icon.”

Judge Terry Green of the Los Angeles Superior Court told the Wall Street Journal that he doesn’t think the future bodes well for American Apparel and the former CEO because of his sexual harassment case.

“No national company would hire this guy. It would be insane. This is sexual harassment. This is the mother of all sexual harassment cases. I mean, this is so far over the top, that you can’t see the top anymore.”

American Apparel filed for Chapter 11 bankruptcy protection on Monday, Oct. 5, after the controversial fashion brand has been struggling for the past few years. The brand reportedly has over $300 million in debt. Chief Executive Officer Paula Schneider released a statement explaining the company’s reason behind this move.

“In partnership with our bondholders, we can work towards a new future for the company and concentrate on what matters: making and selling great clothing.”

American Apparel isn’t going away anytime soon. The company is hoping to stay afloat, thanks to their creditors. They even released a separate email statement to their customers on Monday. But American Apparel remains hopeful as they continue to bring clothes and lingerie that are made in the U.S.A.

NEW YORK, NY - AUGUST 19: An American Apparel store is viewed on August 19, 2015 in New York City. The youth clothing retailer reported a net loss of $19.4 million for last quarter and has said it may go out of business in the near future. Blaming the closing of stores closing and a strong dollar, Los Angeles-based company said sales were down 17% last quarter. (Photo by Spencer Platt/Getty Images)

What’s the reason behind American Apparel’s struggles? Well, it doesn’t help that the company’s founder and former CEO, Dov Charney, has been in the news for accusations of sexual harassment and other lewd behavior before his ousting last December. He has since denied the allegations of sexual misconduct. It also didn’t stop Charney from fighting for his position, and filing several lawsuits against the brand.

On top of having a controversial founder, American Apparel reportedly has $3.6 million in legal fees for the second quarter of 2015. That’s a sharp increase from the $1.4 million the company suffered in legal fees the previous years. Most of the legal fees are stemmed from Charney and his employees.

Industry veterans know that the fashion industry is a fickle business. One day you’re in, and the next day you’re out. American Apparel’s sales peaked in 2013, when they brought in $633.9 million, although the company also experienced a net loss of $106.3 million as their margins shrank. In 2014, their net sales dipped to $608.9 million, while they had a net loss of $68.8 million.

NEW YORK, NY - JUNE 19: Clothing sits on display inside an American Apparel store on June 19, 2014 in New York City. American Apparel's board has voted to remove the company's controversial CEO, Dov Charney. (Photo by Andrew Burton/Getty Images)

American Apparel is also suffering from too much debt. The company tried to avoid filing for Chapter 11 bankruptcy in March, 2009, when it sold 18 percent of the company to private-equity firm Lion Capital. The company then accrued over $111.6 million from taking out loans.

The hipster fashion brand is also known for its controversial advertising. American Apparel always made headlines when its ads would feature underage models in scantily clad clothes and sexually suggestive poses, which generated a lot of negative attention. The company ditched its controversial advertising in June of 2015, and has revamped itself, but fell flat when it received backlash for its casting call that unprofessionally stated, “No Instagram h**s or THOTS.” THOT is the new acronym and internet slang for “that h** over there.” The brand later apologized for using the offensive wording in their casting call.

What are your thoughts on American Apparel’s bankruptcy? Do you think the brand will attempt a comeback despite its history of sexual harassment cases and controversial advertising campaigns? Share your thoughts below in the comments section.

[Photo by Spencer Platt/Getty Images]