Dive Brief:

• American Apparel’s board of directors has rejected a $300 million takeover bid from investors allied with founder and ousted CEO Dov Charney, sources have told Bloomberg. The offer tops the value range, between $180 million and $270 million, that the investment bank assessing potential bids has estimated in court documents.

• U.S. bankruptcy judge Brendon Shannon filed a letter on Thursday saying he will allow Charney-allied witnesses, including potentially Charney himself, at a Jan. 20 hearing about the retailer’s Chapter 11 restructuring plans.

• The retailer’s rejection of the takeover offer means Hagan Capital Group and Silver Creek will have to best their offer or persuade the court to accept it over the company’s own plans, which were approved this week by all stakeholders. Sources told Bloomberg that the company is open to a sweetened bid from the hedge funds.

Dive Insight:

American Apparel has stumbled in recent years, but its fortunes under CEO Paula Schneider have only worsened.

The retailer is facing overall soft demand for apparel and teen apparel in particular, and its 'made in the USA' clothing hasn’t competed well against fast fashion. The company has struggled to come up from under the drama of last summer when the board ousted Charney amid accusations of sexual harassment and financial improprieties. Charney and the company have been trading lawsuits ever since.

Some employees have complained that the retailer has not graduated from its sexual innuendo-laced past. Meanwhile, Charney’s exit has left the retailer without the clear L.A. street vibe that attracted many to its eighties-inspired clothing or much of anything to replace it.

Now, Charney and his investors are the only parties in the way of the company’s restructuring plans, which would have lenders, including Monarch Alternative Capital, Coliseum Capital, and Goldman Sachs Asset Management, that would cut some $200 million of its $397.5 million of debt.

The rejection sets up a showdown at the hearing next week.