American Apparel to file for bankruptcy

American Apparel Inc. is completing plans to file for bankruptcy protection as soon as Monday morning, people familiar with the situation said, the latest setback for a company that was thrown into chaos after a battle to oust founder Dov Charney.

The Los Angeles-based clothing manufacturer and retail chain has struggled with shrinking sales and an outsize store footprint, as well as litigation tied to Mr. Charney, who left the company in December.

American Apparel plans to restructure its debt and close stores in bankruptcy, one of the people said. Creditors have agreed to commit more money to fund the company’s operations in bankruptcy and finance its exit from chapter 11, the person said.

To be sure, companies and their creditors often use the threat of bankruptcy to complete deal making and bring parties to the table. Plans can sometimes change at the last minute, causing bankruptcy filings to be pushed back one or several days.

The company, which had about 10,000 employees in June, had $6.9 million in cash and $38.4 million outstanding on its credit facility as of June 30. It has been staving off bankruptcy through a series of cash infusions.