Investment firm Standard General LP said Monday it gained voting control of ousted American Apparel Inc Chief Executive Officer Dov Charney's shares in the firm and will back the retailer in its battle against bankruptcy.
Standard General said it also planned to nominate a new slate of independent directors to the American Apparel board, to help the struggling retailer in its turnaround efforts.
The New York-based firm said it was "prepared to lend ... credibility and capital resources to prevent this avoidable outcome (bankruptcy, or a liquidation of the company)".
Montreal-born Charney said he increased his stake in the apparel retailer to 43 percent as of June 27.
However, the deal that gives him the stake required that he essentially give up his voting rights to his shares, so it is Standard General that ultimately controls that 43 percent.
Charney, who was fired for alleged misuse of corporate funds and his role in disseminating nude photos of an ex-employee, would give up his position on the board until an investigation was complete, according to the filing with the Securities and Exchange Commission. (1.usa.gov/1m9TG5o)
American Apparel stripped Charney of his chairman role on June 18 but he still remains on the board. The 45-year-old has since threatened to shake up American Apparel's management and board.
"Charney also retains the right to vote the original shares in favor of his election to the board, however, he has agreed not to seek a board seat," Standard General said.
Earlier on Monday, Reuters reported that Lion Capital has ordered American Apparel to immediately repay a $10 million loan, after the retailer failed to do so by a July 4 deadline.
American Apparel, which has not reported a profit in 16 of the past 17 quarters, had more than $214 million in long-term debt as of March 31.
Standard General, known for investing in distressed companies such as RadioShack Corp, clarified that the transaction was not an endorsement of Charney.
The firm said it was already in discussions with American Apparel's board members regarding a shake-up of the board, but an agreement has not yet been reached, it said.
(Reporting by Devika Krishna Kumar in Bangalore; Editing by Cynthia Osterman)