An American Apparel store.
Photograph by Scott Olson — Getty Images
By Phil Wahba
July 9, 2014

New York-based hedge fund Standard General said in a regulatory filing on Wednesday that it would provide American Apparel (APP) with $25 million in financing as part of a deal that would replace most of the clothing store’s board and provide it with much needed liquidity, reducing the odds of a bankruptcy, at least in the short term.

Standard General, which controls about 43% of American Apparel shares thanks to an arrangement it reached last month with Dov Charney, the company’s ousted founder and CEO, said in the filing that American Apparel’s new board will form a committee to decide whether Charney should be reinstated as CEO.

Charney was stripped of his chairmanship and removed as CEO last month in a stunning boardroom coup after the company alleged he had engaged in misconduct. Over the years, Charney has fended off accusations of repeated sexual harassment of employees and of discriminating against some employees staff on the grounds that they undermined the “AA aesthetic.” The ousting was followed by a war of words between Charney and the company that included threats of a proxy fight and a poison pill being put in place.

The financing will help American Apparel repay a $10 million from investment firm Lion Capital, which earlier this week demanded repayment, saying Charney’s dismissal placed the retailer in default on its loan.

In the last year, the company’s financial performance and sales have deteriorated. It has had a cumulative net loss of some $270 million since 2010, and earlier this year, avoided a cash crunch by selling stock.

Five of American Apparel’s seven directors will be replaced and replaced by directors chosen by Standard General. (Two of them will be chosen in concert with American Apparel.)

While Charney cannot play any role in the company while the “Suitability Committee” conducts its investigation — he is not allowed to supervise any employees or have access to American Apparel computers — he might take solace from this: Standard General pledged to keep American Apparel’s manufacturing headquarters in Los Angeles, and affirmed its commitment to the company’s “Made in the USA” manufacturing, two things near and dear to his heart.

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