The litigation trustee in American Apparel’s bankruptcy, from which it emerged in February, notified the court on Monday that the retailer disregarded its reorganization plan when it missed the first of two payments to unsecured creditors, according to Law360. The distributions total $2.5 million, Reuters reports.
The trustee, represented by Richard M. Beck and Domenic E. Pacitti of Klehr Harrison Harvey Branzburg LLP and David Posner and Gianfranco Finizio of Kilpatrick Townsend & Stockton LLP, is asking a Delaware federal judge to transfer disbursing power before American Apparel files for Chapter 11 protections again, which it is reportedly preparing to do in the next few weeks.
Court papers indicate the trustee has called for an emergency hearing on Friday, when the trustee will seek to enforce the terms of the retailer’s reorganization plan. American Apparel did not respond to a request for comment, Law360 notes.
As American Apparel reportedly readies itself for a second bankruptcy in a little over a year, the struggling retailer must still contend with the terms of the reorganization plan approved in February. Since then, the retailer has continued to struggle with sales, and former CEO Paula Schneider stepped down last month amid reports the retailer might move some of its operations overseas. Schneider recently joined Delta Galil as the CEO of DG Premium Brands.
Since emerging from bankruptcy as a private company under the watch of bondholders led by Monarch Alternative capital, American Apparel has brought in strategic advisory firm Berkeley Research Group to oversee its restructuring efforts, according to a report from Debtwire.
American Apparel may need to file for Chapter 11 again to be allowed to stanch the bleeding by exiting leases and other obligations. Such a move could also make it more appealing to a buyer. Brand licensors Authentic Brands Group LLC and Iconix Brand Group Inc. have expressed interest in an acquisition, indicating that, despite its problems, its brand remains strong.
There is also speculation that founder and previously ousted CEO Dov Charney could be interested in taking back the company, which he tried to do last year. Charney, though, seems through with the notion: He told Retail Dive that he is now working on establishing a new t-shirt company and that he’d have to see the asking price and assess other considerations like inventory before considering buying back the retail company he founded in 1989. He continues to post updates on his new effort at his new website That’s Los Angeles.