Replies to post #2307 on American Apparel, Inc. (fka APPCQ)

[LouisDesyjr]

Breach of fiduciary duty

The problem is that the company is not really under the control of the board anymore. The board are more like managers for the bankruptcy estate that the company is in, and have to follow bankruptcy law and rules.

When a bankruptcy is filed, it creates a bankruptcy estate where everything up to the instant of the filing, is put into the estate. While the managers and board are usually still in place, they are running the company on behalf of the estate. There is a trustee that oversees the estate and the court to make sure the rules and laws for bankruptcy are followed.

Form 8K for operating report for period ending Nov 30, 2015:
http://ih.advfn.com/p.php?pid=nmona&article=70022807

In the situation here, there are two problem to saving the current common shares.

1: As of November 30, 2015; total liabilities are $470 million. In order to 'save' or preserve the existing common shares, a deal would have to be made that would make whole those secured and unsecured liabilities, which are higher in priority than the existing common shares. The deal was quoted as being worth $300 million, so while the secured liabilities might have been made whole, the unsecured would still have losses and have a right under the bankruptcy order of priority of the classes, to take all of the equity in the reformed company. In any case, $300 million does not make the holders of the liabilities whole and won't work or help the existing common shares.

2: There is a problem as to what the reformed company is worth. Even in November 2015 the company was still losing over $10 million per month. While that is not the holiday season, the company should be at least breaking even if it is going to become profitable, instead it is still losing money.

I expect that the secured debt holders are going to take over the company completely, and the unsecured liabilities and existing common shares will not have any recovery in the Chap 11 plan. I do not expect the former CEO will be able to raise enough money to buy out the company. Who would want to invest three or four hundred million in a company that is still losing money? My answer is that no one would do this.

Louis J. Desy Jr.