Chapter 11 bankruptcy filing an option for troubled American Apparel

Chapter 11 Bankruptcy Looms for American Apparel

Chapter 11 bankruptcy protection is becoming a real option for clothing retail company American Apparel Inc., the company said today.

American Apparel has been losing revenue and had to lay-off workers because of weak demand of clothing as the U.S. economy dipped.

It informed the Securities and Exchange Commission through a filing on Thursday that it "may need to voluntarily seek protection under Chapter 11 of the U.S. Bankruptcy Code" because of mounting losses.

American Apparel also said it will liquidate its assets if a viable reorganization plan under Chapter 11 protection is not put in place.

The SEC filing comes after a dismal report by the company on Friday showing that it lost $19.3 million in the fourth quarter or 27 cents per share. Just a year ago, it posted 4 cents per share with a net income of $3 million. Overall revenue also fell 9 percent from $158.1 million to $144 million, for the quarter ended December 31.

A looming Chapter 11 bankruptcy is not the sole issue besetting American Apparel. Founder Dov Charney was sued last month by a former employee for sexual abuse. The company said the case will likely be dismissed because the complainant signed an agreement not to file any suits prior to leaving American Apparel. Charney had admitted in the past only about consensual sex with female employees.

Because of its financial troubles and late filing of a quarterly earnings report, American Apparel was in danger of being delisted in the New York Stock Exchange in October.

The vertically integrated clothing company is facing an uphill climb from financial decline with the possible Chapter 11 bankruptcy.

Posted by James Fried on Saturday April 02 2011, 7:10 AM EST. Ref: AP. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0