American Apparel Bankruptcy Could Be On the Horizon

Posted on September 18, 2015 at 12:00pm by
Our blog explains recent news on Gibson's bankruptcy.

Clothing retailer American Apparel has warned shareholders that it must raise more money to keep its business open. Vendors who supply fabric and other resources to American Apparel are concerned over the non-payment of its bills. One vendor, The Knit House Corp., has taken American Apparel to court over an outstanding $81,000 bill.

American Apparel has fended off multiple lawsuits, including one from its founder and former CEO. Legal fees have accumulated, adding financial stress to the struggling company.

In addition to legal fees, the clothing retailer reportedly does not have enough cash on hand to cover the $15.5 million in interest payments quickly approaching. In the last year, company shares have plummeted 87 percent, and the company appears to be in a position where it can longer afford its debts.

According to Standard General, a creditor who has financed American Apparel, the ousted CEO is planning to buy back the company if it enters bankruptcy. There is speculation on Wall Street that an American Apparel bankruptcy is a strong possibility.

What Does American Apparel Have to Gain From Chapter 11 Bankruptcy?

In cases where businesses have exhausted the ability to borrow money and are facing unaffordable interest payments, Chapter 11 bankruptcy can offer a solution for survival. If American Apparel files for Chapter 11 bankruptcy, it may be able to reorganize debts and stay open.

Chapter 11 bankruptcy could provide an opportunity for the company to make payments more affordable while continuing to bring in income. Given its situation, Chapter 11 bankruptcy might be the best choice for the struggling company.

The Sader Law FirmKansas City Bankruptcy Attorneys