A judge has ruled in favor of the bankruptcy plan submitted by American Apparel (asi/35297), eliminating Dov Charney’s takeover bid and the ex-CEO’s best chance at returning to the company he started.

Yesterday, Judge Brendan Shannon approved the Top 40 supplier’s restructuring plan that is supported by the majority of the company’s lenders, which will hand over control of the company to Monarch Alternative Capital and other bondholders in exchange for a reduction in debt of about $200 million.

"This is a new day for the company, and a positive outcome for our customers, vendors and employees," said American Apparel CEO Paula Schneider in a statement. "With this milestone behind us, we are now fully focused on executing our turnaround strategy as we continue working to drive revenue across our wholesale, retail and e-commerce businesses."

Charney had recently partnered with Hagan Capital Group and Silver Creek Capital Partners and submitted a $300 million offer to buy the company. The investor group planned to reinstall Charney as co-CEO. American Apparel rejected the offer, and Charney filed a challenge in court, objecting to the company’s bankruptcy plan and claiming the group’s offer was superior.  

As the company’s largest shareholder, Charney’s stake will lose all its value under the reorganization plan. Charney told the Los Angeles Times he will not appeal the ruling. In a statement, he said he was “obviously disappointed” with the decision and accused the company of using Chapter 11 bankruptcy protection “to thwart my efforts” instead of opening up the company to open bidding.

“This outcome is one that I have been working tirelessly for nearly two years to avoid in an effort to protect value for the company's various stakeholders. Now all stockholders will have their shares and value extinguished,” Charney said in the statement.

Chad Hagan of Hagan Capital told Bloomberg Business that the investor group will back Charney on a new apparel venture that will be a direct competitor to American Apparel. In his statement’s conclusion, Charney said, “What gives me great optimism are the things I possess that can't be stolen by a predatory hedge fund – my ideas, values, drive, authenticity, integrity and my passion. To that end I ask that my supporters stay tuned.”

In his decision, Shannon stated that American Apparel needed a quick decision to hasten the company’s exit out of bankruptcy and maximize its chances of success. According to Bloomberg, Shannon said that if American Apparel was being sold to the highest bidder, the judge would have ordered the company to negotiate further with Charney. But since the company was being turned over to senior lenders, the votes of the bondholders held more sway. “The transaction offered as an alternative,” said the judge about Charney’s offer, as reported by the New York Times, “doesn’t provide sufficient reason to reject the bid.” The judge also rejected Charney’s assertion that American Apparel can only succeed under the ex-CEO’s leadership.

American Apparel filed for bankruptcy protection in October. Under the plan, American Apparel will be taken private and removed from public trading on the stock market. Charney and current CEO Paula Schneider both testified last week in court in support of their plans.