American Apparel rejects bid from investors backing ex-boss Charney's return

The fashion retailer’s directors snubbed the offer because the investors, including Hagan Capital Group and Silver Creek Capital Partners, refused to pay American Apparel $130m (£91m).

Bosses said that sum would have been incurred by the business during the four months required to negotiate the offer with its senior creditors.

These costs comprised a $90m (£63m) loan that matures next month and $40m (£28m) to $50m (£35m) of working capital, according to court papers filed in the US Bankruptcy Court in Wilmington, Delaware.

American Apparel is due in court on Wednesday, when it will seek approval for its restructure. The plan would reduce its debt by $200m (£140m) and see its lenders, the most senior of which is Monarch Alternative Capital, take over the chain.

American Apparel filed for Chapter 11 bankruptcy last October and has been embroiled in a row with Charney since his dismissal. The retailer was granted a restraining order against its former chief executive last June.

Charney, who was dismissed in 2014 on the grounds of sexual harassment, is spearheading the takeover bid, which is dependent on his reinstatement as chief executive.

Under Charney’s tenure, American Apparel struggled with losses and debt, but its results worsened following his departure. Its debt had ballooned to $397.5m (£278.3m) by the time it filed for bankruptcy protection.