Ex-Clothestime Chief Seeks to Revive Company

Former Clothestime Chairman John Ortega II on Wednesday said that he’s formed an investor group that is crafting a reorganization plan that would allow the junior women’s apparel chain to exit bankruptcy proceedings.

Details of the plan were sketchy, but Mark Worchester, Ortega’s attorney, said the former Clothestime executive’s group would pump “new money” into the ailing retailer.

He described Ortega’s proposed plan as “more attractive” to creditors of the Anaheim Hills-based chain than a competing plan developed by the retail chain’s managers in conjunction with an official creditors committee.

Company officials on Wednesday downplayed the significance of a possible competing plan.

“We’re aware that some people are exploring alternatives to our plan, and we’ve discussed those alternatives with our creditors committee,” said Clothestime Chairman David A. Sejpal. “And the creditors committee remains fully supportive of our plan. They do not view any of these other alternatives as being viable.”

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The plan endorsed by Clothestime managers calls for banks and other creditors holding $50 million in Clothestime debt to get $7.5 million, or 15% of what they’re owed, in cash.

Unsecured creditors would end up owning about 75% of the reorganized company under management’s plan, and current shareholders, including Ortega, would receive nothing.

Ortega’s proposed plan would “introduce new capital, new value into the company,” Worchester said. “The plan proposed by the company and creditors wouldn’t bring new money in. “

Bankruptcy attorneys familiar with the case said that Ortega’s first hurdle will be convincing U.S. Bankruptcy Judge John J. Wilson to let him enter the fray. Wilson earlier had granted the company’s managers and creditors committee exclusive rights to draft a reorganization plan.

Wilson is scheduled to review the management-backed reorganization plan during an April 28 hearing.

Ortega on Wednesday petitioned Wilson for permission to introduce his new proposal so the two plans can be compared, Worchester said.

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Ortega, who resigned in January along with longtime President and Chief Operating Officer Norman Abramson, helped steer the retail chain toward a string of successful years during the late 1980s with a fashionable blend of lower-priced apparel and accessories.

But the chain fell upon hard times during the 1990s as competitors used low prices and name brands to grab market share. Clothestime entered bankruptcy proceedings in December 1995 and has closed 250 poorly performing locations.

Ortega said that he resigned as chairman and a company director earlier this year because the company was headed toward liquidation. But he said he would have remained at the company had he known that a reorganization was forthcoming.

The company’s stock stopped trading on Nasdaq in 1996 after its capital fell below required levels. Sejpal said recently that if management’s plan is adopted, Clothestime would likely emerge from bankruptcy court later this year and turn a profit during 1998.