In Wake of Restructure, Nasty Gal Files for Bankruptcy

nasty galNasty Gal, a homegrown fashion outfitter based in Los Angeles, has an interesting story. Its founder, Sophia Amoruso, started the company in 2006 with nothing more than a laptop, an eBay account and her passion for developing vintage clothing. The business prides itself on designing and producing its own clothes, shoes and accessories on the West Coast.

Despite former CEO Sophia Amoruso’s passionate fan base, the Nasty Gal fashion company filed for Chapter 11 bankruptcy, according to Re/code. The company made the move in preparation for a restructuring of its debts.

Shifting leadership 

Re/code noted that Amoruso had stepped down as executive chairwoman, and Director Danny Rimer had also resigned from his board position. Four years ago, Nasty Gal was in a better position. In 2012, Index Ventures invested $49 million into the business. Even last year, retail executive Ron Johnson provided $16 million in funding. So, what happened?

Recently, change has been the only certainty for Nasty Gal. Another story from Re/code noted that, in January 2015, Amoruso resigned as chief executive officer, handing the title to Sheree Waterson, who had been the fashion company’s president beforehand. Amoruso, then only 30 years old, indicated she believed Nasty Gal needed someone at the helm who had experience managing and driving operations. 

Yet, at the beginning of 2016, Nasty Gal laid off 10 percent of its workforce, according to Racked. Waterson noted the decision would “allow [Nasty Gal] to continue to evolve as a company.” 

Bankruptcy and legal troubles 

TechCrunch noted Nasty Gal filed for bankruptcy to resolve its liquidity issues, correct structural problems and achieve compliance with its debt agreements. 

“We expect to maintain our high level of customer service and emerge stronger and even better able to deliver the product and experience that our customers expect and that we take pride in bringing to the market,” said the company in a statement, as quoted by TechCrunch.

The bankruptcy comes in the wake of much legal wrangling over the past couple of years. According to The Fashion Law, the company was facing four lawsuits regarding its termination practices. Allegedly, Nasty Gal had fired three staff members either because of their gender or because of pregnancies. In another case, former Nasty Gal employee Farah Saberi filed a lawsuit claiming Amoruso fired her after she received a heart transplant. Upon returning to work, Saberi alleged that Nasty Gal reduced her salary, demoted her to a lower position and eventually fired her.

Saberi’s lawsuit cites violations of the Fair Employment Housing Act, Wrongful Termination and the Americans with Disabilities Act. The former Nasty Gal employee aims to receive $3 million in compensation for her grievances. 

With respect to the bankruptcy, it will be interesting to see what Nasty Gal will look like after the restructuring.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.

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Joel Glucksman is an experienced civil and bankruptcy litigator specializing in the representation of secured lenders and other creditors in complex suits and bankruptcies. His court appearances take him throughout the State and Federal courts in the metropolitan area, focusing in particular on the Bankruptcy Courts for the District of New Jersey and the Southern and Eastern Districts of New York. For more information, please visit Joel Glucksman's full biography at Scarinci Hollenbeck

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