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American Apparel’s Latest Obstacle to Bankruptcy Sale

American Apparel bankruptcyAmerican Apparel’s legal woes continue. After filing for bankruptcy for a second time last month, the beleaguered retailer is now in a battle with a dye house over raw materials.

The California-based company is suing Tri-Star Dyeing & Finishing Inc. in bankruptcy court over 250,000 pounds of American Apparel’s fabric. The suit alleges that the textile company refuses to release the fabric until American Apparel pays $100,000 in outstanding invoices dating to before the bankruptcy.

The retailer needs this issue resolved so the situation doesn’t negatively impact Gildan Activewear Inc.’s $66 million bid to purchase the company’s name and option to buy its distribution houses. That potential deal is contingent on American Apparel fulfilling purchase orders from the Canadian apparel firm that would allow it to operate close to normal through next month’s bankruptcy auction.

The balance of the company, including its retail business, is still up for grabs.

This most recent bankruptcy has been contested by unsecured creditors still awaiting payout from the first bankruptcy settlement, which concluded less than a year ago. A judge recently approved American Apparel’s use of the $30 million debtor in possession financing it secured from Encina Business Credit.

 

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