Aé ropostale Inc.'s doors remain open as back-to-school shoppers hit the stores, but there is no guarantee the company will survive for long.

A planned auction of the massive store chain has been pushed back to Aug. 29 as a bankruptcy judge weighs what could be a company-ending decision for the international seller of apparel to young adults

Judge Sean Lane is set to rule later this week on a dispute between Aé ropostale and the private-equity firm that was at one time one of its largest backers, Sycamore Partners.

Junior creditors and the company are allied in a campaign to save Aé ropostale, avoiding the "loss of over 10,000 jobs, empty lease locations and disappointment for vendors," creditor attorney Robert Feinstein said at a hearing Tuesday in New York bankruptcy court.

Aé ropostale is pressing for a ruling that would rein in Sycamore's power to determine the company's fate. Sycamore contends liquidation, not a sale of the operating business at a bargain-basement price, is the best option for creditors.

In deposition testimony earlier this month, board chairman Karin Garvey said Aé ropostale's goal is "To save as many jobs as we can and emerge as a company intact."

Aé ropostale blames Sycamore for allegedly using its control over a big supplier and big lender to back it into a corner, forcing the bankruptcy.

The fight with Sycamore followed Aé ropostale into chapter 11 bankruptcy protection in May. "We have a private equity fund that orchestrated a careful strategy to force the company into bankruptcy precipitously," said Ray Schrock, lawyer for Aé ropostale.

Sycamore contends Aé ropostale is responsible for its own fortunes for failing to outrun market trends that have toppled many retailers.

Aé ropostale is asking Judge Lane to limit Sycamore's clout in the bankruptcy, as a remedy for alleged improper conduct. The company contends Sycamore sold out its equity stake, then "crashed" Aeropostale's finances, in an effort to force it to liquidate.

Sycamore denies the accusations and is battling for the right to bid its loans, $150 million, as currency at a bankruptcy auction, in a so-called "credit-bid."

According to Mr. Schrock, potential buyers won't step up to compete with Sycamore, if Sycamore is allowed to bid with debt, rather than cash. A credit-bid from Sycamore is an end for Aé ropostale, though there are signs turnaround efforts are succeeding, the company's lawyer said.

Another possible contender is Philadelphia's Versa Capital Management, with a bid which, court papers say, could keep hundreds of stores open. In a court filing Monday, Sycamore said there was no signed offer from Versa yet.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

August 23, 2016 23:25 ET (03:25 GMT)

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