Co-Founder May Reenter Clothestime as an Investor

Clothestime co-founder Raymond A. DeAngelo, who left the troubled company in 1995, is considering reentering the company as an investor, according to Securities and Exchange Commission filings.

DeAngelo, who resigned in January 1995 as the company’s chief executive officer, told creditors in late November that he might submit a proposal to either buy parts of the company or make an investment in it.

But, according to the securities filings and attorneys familiar with Clothestime’s bankruptcy case, DeAngelo has yet to offer terms of how a possible deal might be structured. DeAngelo didn’t return telephone calls seeking clarification of his possible future role at the company he helped to found during the 1970s.

Speculation about DeAngelo’s reentry comes as the company deals with last week’s unexpected resignation of its two top executives: Chairman and Chief Executive John Ortega II and Chief Operating Officer Norman Abramson.

During DeAngelo’s tenure, Clothestime moved from an Orange County swap meet into the more formal world of retailing, eventually opening more than 500 stores in strip malls around the country. DeAngelo is credited with helping to fashion the chain’s merchandising strategy of selling lower-priced fashionable apparel to younger women.

But the company now has a dearth of merchandising and marketing expertise in its Anaheim corporate headquarters.

Chief Financial Officer David A. Sejpal, who has a strong financial background, was named to fill the open executive positions.

Sejpal “has been a shining light in the reorganization,” said Cathy Hershcopf, an attorney representing Clothestime’s creditors. “But while he has a lot of credibility with the committee as far as finances, he’s not a merchandiser.”

The departure of Ortega and Abramson comes as the company and its creditors prepare for a status conference Jan. 27 before U.S. Bankruptcy Court Judge John Wilson.

The meeting in Wilson’s Santa Ana courtroom comes more than a year after the company pushed itself into Chapter 11 bankruptcy proceedings. Attorneys working on the lengthy case say the session should give Clothestime customers and creditors a better idea of when--or if--the retailer will craft a plan of reorganization and emerge from bankruptcy.

In addition to offering Wilson insight into what the departure of Ortega and Abramson means to the troubled company, the conference might force DeAngelo and any other interested investors to make speedy decisions on their potential roles.

“There’s no longer an infinite amount of time in which to make decisions,” Hershcopf said. “Both the creditors committee and the debtor will have to be as straightforward as they can with the judge at that time.

“And this kind of a hearing might also force Ray DeAngelo to decide what he’s going to do.”