The board of directors of troubled fashion retailer American Apparel Inc. (NYSEMKT: APP) has reached an agreement with hedge fund Standard General under which control of the company passes to the hedge fund in exchange for sufficient liquidity to prevent a bankruptcy of American Apparel. Standard General will nominate a new slate of five independent directors to the company’s seven-member board.

American Apparel’s ousted chairman and CEO, Dov Charney, has turned over voting power of his shares in the company to Standard General and will give up his seat on the board as part of the deal. Charney has retained his right to vote his shares in favor of his re-election to the board, but he has agreed that he will not seek a board seat. Standard General now controls 43% of the American Apparel’s stock and voting power.

As part of the agreement, Standard General has agreed to refinance a $10 million loan from Lion Capital that the lender said became due when Charney’s removal activated a change-of-control clause in the loan’s covenants. The New York Post reported late Monday afternoon that Standard General could pay off the loan from Lion Capital “as soon as this week if necessary.” Lion Capital called the loan on Monday, but it is now a “non-issue” a source told the Post.

Two of American Apparel’s current board members, co-chairmen Allan Mayer and David Danziger, will remain and the other five members will be replaced, three by Standard General and two by mutual agreement between the hedge fund and the company.

Charney has no guarantee from Standard General that he will have any role in the future of a company that may not have a future at all. Shares closed at $0.885 Monday but rose more than 5% in after-hours trading to $0.93, in a 52-week range of $0.46 to $2.09. Trading volume was heavy, with 8.75 million shares changing hands Monday, compared with a daily average of 5.3 million.

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