Facing a mountain of debt and legal action by creditors, the company that operates venerable dress house Carole Little and sportswear maker Chorus Line has padlocked its doors and terminated employees and is scrambling to salvage what were once some of the hottest labels in the Southern California fashion industry.
The moves follow an attempt by three suppliers who filed an involuntary bankruptcy petition in U.S. Bankruptcy Court in Los Angeles last month to force Chorus Line Corp. to liquidate or reorganize. Court papers allege the vendors are owed a combined $140,000. But those debts represent just a fraction of the millions in outstanding claims burdening the struggling apparel firm, according to court records, creditors and company officials.
Once among the brightest lights on the local fashion scene, Chorus Line and Carole Little helped distinguish Southern California as a nationally recognized center of apparel design.
Leonard Rabinowitz, executive vice president of Chorus Line Corp., said the Vernon-based firm is attempting to secure funding to continue operation. But the shutdown presents a major challenge to the company, which does business under the name CL Fashion Corp. With deadlines for the spring and summer fashion seasons rapidly approaching, Rabinowitz said, production must resume quickly to prevent nervous retailers from defecting to other manufacturers.
"The future of this company will be decided next week," he said. "If we haven't reorganized by then, it's probably over."
Attorney Steven Gubner, who is representing the vendors who launched the involuntary bankruptcy action, confirmed that Chorus Line Corp. has agreed to a deadline of Dec. 8 to respond to the petition. Gubner said the company has three options. It can derail the petition by proving it has paid its debts. It can consent to Chapter 7 liquidation. Or it can attempt to reorganize under Chapter 11 bankruptcy protection.
Debtor's counsel Ron Bender said it's likely that the company will attempt to reorganize under Chapter 11.
Whatever the outcome, the ripple effects are already being felt throughout the local industry, where the company has racked up considerable debts with small contractors and suppliers. The company's 300 employees are suddenly without paychecks in the midst of the holiday season, and they're fuming over what they say were illegal firings.
Workers say they were told Nov. 16 that the company could not meet payroll and that they were being furloughed until further notice. Employees say they found out only Friday through a recorded message on a company-sponsored hotline that management considered them terminated as of Nov. 16, and that their insurance and other benefits had already expired.
Under California's labor code, employers must pay all wages due to employees at the time of termination. Workers such as Natalie Wierzba say she and others are owed several weeks' pay, vacation time and other compensation.
"People are up in arms," said Wierzba, vice president of sales and merchandising for the company's St. Tropez and Molly Malloy divisions. "We're not going to take this lying down."
Angry employees have already picketed the Beverly Hills offices of Levine Leichtman Capital Partners, which owns Chorus Line Corp. The investment firm purchased a controlling stake in the sportswear maker in May. A few months later it purchased Carole Little, moving the company's operations into the Chorus Line facility in Vernon.
The two companies had been buffeted by changing consumer tastes, bloated overhead and consolidation among retailers. Carole Little, for example, posted annual sales of about $375 million at its peak in the early 1990s, gradually declining to about $120 million. Levine Leichtman sought to revive both companies' fortunes by freshening their brands, combining operations and slashing operating costs.
But many industry veterans expressed skepticism, citing Levine Leichtman's inexperience in the apparel industry and the contrasting cultures of Chorus Line and Carole Little. Chorus Line is a maker of moderately priced sportswear whose All That Jazz and Molly Malloy labels have been found everywhere from department stores to off-price retailers. Carole Little makes high-quality women's sportswear and career apparel sold in better department stores nationwide.
"They are totally different companies," said retail consultant Sandy Potter, principal of Los Angeles-based Directives West. "It never made much sense to me."
Rabinowitz, founder of Carole Little, clearly is feeling seller's remorse. In the mid-'90s the company was rocked by the murders of two company officials and a contractor. But he says this experience is just as unnerving. He said he and his ex-wife, designer Carole Little, are "devastated" by the shutdown of the company and "heartbroken" that employees aren't getting paid.
"Carole and I no longer have financial control of the company," he said. "If we did, we'd find a way to pay these people."
Levine Leichtman general partner Arthur Levine said his firm is considering all its options. He declined to disclose how much the firm has invested in Chorus Line Corp.
"We were very surprised by the lack of liquidity in the company," Levine said. "We have recently learned that the financial condition of the company was not as represented to us at the time we invested."
According to debtor's counsel Bender, Chorus Line Corp.'s largest secured lender is GMAC Commercial Credit, which is owed $40 million to $50 million. He estimates Chorus Line's total outstanding obligations at $70 million to $80 million.
Those are big numbers. But if Chorus Line Corp. cannot be resurrected, little guys say it's they who will suffer the most.
"They owe me $36,000," said contractor Garnik Antonyan, whose brother was one of the three people slain in the Carole Little murders. "How do they expect us to pay our employees? . . . This whole thing is such a tragedy."