WILMINGTON, Del. Dov Charney, the founder of American Apparel(APPCQ.PK), told a U.S. judge on Thursday the board threatened "character assassination" if he fought his removal as chief executive in 2014, in testimony that could determine control of the bankrupt teen retailer.

Los Angeles-based American Apparel Inc, known for its "Made in the U.S.A" fashion and sexually-charged advertising, filed for bankruptcy in October. The company blamed a shift in shopping habits, too much debt and inventory and lawsuits tied to Charney's volatile tenure as CEO.

American Apparel wants Bankruptcy Judge Brendan Shannon in Wilmington, Delaware, to approve a plan to end the Chapter 11 by ceding control to hedge funds that hold its bonds, led by Monarch Alternative Capital.

Charney has objected and wants the judge to consider a $300 million takeover plan involving Charney and backed by two investment funds, Hagan Capital Group and Silver Creek Capital Partners.

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The company's board rejected the Hagan takeover earlier this month.

An animated Charney, wearing a gray jacket and slacks and white sneakers, testified the board "blackmailed" him in mid-2014 by offering a multi-million dollar severance if he surrendered his large minority stake and left. If not, he faced "character assassination," he said.

In December 2014, he was fired for allegedly misusing company funds and failing to stop a subordinate from defaming former employees. He has denied the allegations.

A lawyer for American Apparel said the company disagreed with "just about every word" of Charney's testimony.

"I am fully cognizant that there are two sides to this story," said Shannon, the judge.

Charney also detailed his efforts to find investors willing to back his return, but said an American Apparel board controlled by the Standard General hedge fund prevented bids from being considered.

"It is impossible now and it was impossible then," he said.

Earlier on Thursday, Chad Hagan of Hagan Capital testified about his long-term interest in American Apparel and described a call last week to discuss his bid with the company's CEO as "immediately pretty hostile."

He also said in his recent deposition the company's legal team presented him with police reports about Charney and wanted to know if the founder had a "character defect."

"They were trying to scare us away," Hagan said.

Chief Restructuring Officer Mark Weinsten has said in court documents the company paid about $7 million in 2014 to resolve claims including sexual harassment against Charney.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Bernard Orr)