American Apparel should be ordered to pay $2.5 million in distributions required by its reorganization plan as reports indicate the company may soon return to bankruptcy, according to the unnamed litigation trustee - the individual appointed by the bankruptcy court upon the recommendation of one or more creditors' committees after a reorganization plan has been confirmed by the court - in its Chapter 11 case.
In documents filed with the court on Tuesday, the trustee for the retailer, which is known for its "Made in the U.S.A." garments and sexually charged advertising, called for an emergency hearing for Friday in order to enforce the terms of American Apparel's reorganization plan. The plan was confirmed earlier this year and requires semi-annual payments for a year on general unsecured claims. Payments due in August have yet to be made, the trustee said in court papers on Monday.
In particular, the trustee is seeking a transfer of the funds at issue along with an additional $250,000 to cover expenses. He noted that his concern about distributions, which have intensified due to recent media reports that the company may return to bankruptcy.
According to reports, including one from MarketWatch, American Apparel, less than nine months after emerging from its initial Chapter 11 filing "and losing sales and bleeding cash, has been slashing payroll at its Los Angeles factory — but it may not be enough to keep it afloat through the holidays."
Reuters reported in October that said brand licensors, Authentic Brands Group and Iconix Brand Group Inc, are among several companies interested in acquiring American Apparel if it files for bankruptcy again. A second round of bankruptcy for the troubled retailer would allow a buyer to leave behind liabilities of tens of millions of dollars, including leases for more than 200 stores, according to people familiar with the matter, Reuters said.
American Apparel filed for bankruptcy last year, citing changing consumer tastes and overwhelming debt. The retailer won approval for its Chapter 11 plan in January after beating back takeover efforts by ousted founder Dov Charney. The company emerged from bankruptcy in February, hired investment bank Houlihan Lokey Inc to explore a sale this summer, Reuters reported in August.
* The case is In re American Apparel Inc, in U.S. Bankruptcy Court for the District of Delaware, No. 15-12055.