American Apparel files for Chapter 11 bankruptcy The bankruptcy comes more than a year after the company ousted its controversial CEO, Dov Charney, over allegations of misconduct.

Nathan Bomey | USA TODAY

Show Caption Hide Caption American Apparel files for Chapter 11 bankruptcy American Apparel filed for Chapter 11 bankruptcy on Monday following a rocky period in which its made-in-the-U.S. model faltered and its controversial CEO became embroiled in controversy over his behavior in the workplace.

American Apparel filed for Chapter 11 bankruptcy on Monday after its made-in-the-U.S. model faltered, its fashion sense slipped and its controversial former CEO became embroiled in scandal over his behavior in the workplace.

The embattled retailer said it has already reached agreements with creditors representing 95% of its secured debts to execute a restructuring plan. The deal, which would require a court's approval, will allow the company to stay in business, American Apparel said in a statement.

American Apparel (APP), which flirted with bankruptcy as early as 2011, has about 8,500 employees at six factories and 230 stores in the U.S. and 17 countries. The company famously bet its business model on clothing made in the U.S.

The company said in a court filing that it plans to shed unprofitable stores, though it did not identify how many.

American Apparel has slumped in competition with agile retailers such as H&M and Forever 21 that have appealed to Millennial consumers with cheaper, more fashionable products.

It was not immediately clear how the bankruptcy would affect former CEO Dov Charney, who had undertaken efforts to exert control over the company after the board fired him in 2014 amid an investigation over what the retailer called "alleged misconduct."

Charney was the target of several lawsuits alleging sexual harassment for what accusers described as his inappropriate behavior in the office. He still owns more than 5% of the company, according to American Apparel's bankruptcy petition. He had long made headlines for airing sexual ads featuring young women and bragging about the company's "sweatshop-free" business model.

Since his departure, Charney has sued American Apparel. In its filing, the company said bankruptcy would help it escape "significant litigation overhang resulting from its former chief executive officer's misconduct and lawsuits he has brought against the company."

The 26-year-old company lost about $300 million from 2009 through 2014, according to its bankruptcy filing. It had more than $600 million in revenue in 2014, with 59% coming from its stores, 29% from wholesale transactions and 12% from online.

The company acknowledged a fundamental lack of seasonal planning, with factories producing swimsuits in September and stores selling "the same offerings year-round," generating a "stale appeal."

American Apparel's weak Web strategy also undermined its finances. The company gets only 11% of its revenue from online sales, compared to 20% for its competitors, according to a court filing.

American Apparel listed $199.3 million in assets and $397.6 million in debt. The retailer has procured $90 million in bankruptcy financing from its secured creditors.

The company said it plans to complete a debt-for-equity exchange, converting $200 million senior secured notes into stock.

Under the proposed restructuring plan, unsecured creditors would receive cash from a litigation trust and a $1 million cash payment, according to the filing.

The restructuring plan "will save thousands of American manufacturing jobs and will preserve a true American apparel manufacturer," the retailer said in its court filing.

American Apparel's new CEO, Paula Schneider, had charted a strategic path to rehab the company's image through a mix of new marketing, products and store design.

"This restructuring will enable American Apparel to become a stronger, more vibrant company," Schneider said Monday in a statement. "By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create captivating new marketing campaigns that will help drive our business forward."

American Apparel appointed Mark Weinsten as its chief restructuring officer and hired Jones Day as its lead bankruptcy law firm.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.