Clothestime Moves Toward Ending Bankruptcy
Clothestime Inc. on Thursday took its first step toward exiting bankruptcy proceedings when a judge authorized the company to mail copies of a proposed reorganization plan to the firm’s creditors.
The struggling apparel company owes landlords, banks and other creditors a total of $50 million. The plan that creditors will vote on during coming weeks includes a $3.5-million immediate payment and as much as $4 million in additional funds that would be paid during coming years if the company’s financial performance improves.
Current shareholders would receive nothing under the plan. Creditors would end up owning 75% of the Anaheim-based company, and the company’s management team would own the rest.
U.S. Bankruptcy Judge John J. Wilson prohibited Clothestime founder and former chairman John Ortega from distributing a competing plan that Ortega’s attorneys said would distribute more cash than the company-sponsored plan.
Wilson also rejected a request from New York-based Museum Clothing for more time to ready a reorganization plan from unidentified investors in New York and Hong Kong.
Wilson supported Clothestime’s contention that further delays requested by Ortega and Museum Clothing would endanger the company’s chances of returning to profitability. Attorneys for Ortega and Museum Clothing had argued that, given more time, they could structure deals that would bolster cash payments to creditors.
After the hearing in Wilson’s Santa Ana courtroom, Clothestime executives said that the 250-unit junior women’s apparel and accessories chain might be able to exit bankruptcy proceedings by Sept. 11.
“What this does is reduce confusion in the marketplace,” Clothestime Chairman David A. Sejpal said. “And what we’ve got to do is provide continuity by continuing to make the progress that we’ve shown in recent months.”
Clothestime, which is in the midst of the important back-to-school sale season, also is readying its 250 stores for the upcoming holiday season. The chain has been in Chapter 11 bankruptcy proceedings since December 1995.
The Anaheim-based chain recently reported a $3.4-million, or 24-cent-per-share, loss in the first quarter on revenue that fell by 2.8% to $42.5 million. A year earlier, the company reported a $5.8-million loss on $43.7 million in revenue.
Attorneys representing Clothestime said that the company, which was just days from liquidating its holdings in 1996, is rebounding, and that “the debtors stand here today ready to go forward.”
Clothestime will mail copies of the 137-page reorganization plan to creditors early next week. Wilson approved a tight schedule that calls for Clothestime attorneys to tally voting results and address creditors’ objections by early September.
