The recent filing for Chapter 11 bankruptcy protection in the US by Natura, parent company of Avon, is yet another reminder that even long-established consumer brands can be vulnerable to historic claims which result in significant potential future liabilities.
What happened to Avon?
With a 130-year history beginning in New York, and leading to significant global expansion, Avon was one of the first businesses to pursue a catalogue based “door to door” model of selling to consumers. Whilst more recently it has opened a limited number of high street stores, its main business remains supply to customers via more than 40,000 independent representatives.
As a result, Avon doesn’t represent the typical high street model, which has suffered significant downturn in recent years, particularly since lockdowns drove a significant volume of consumer spending online.
Arguably the rise in home shopping should have represented a boon for Avon, were it not for the allegations of product contamination in its range of talc products. These claims have led to the company running up legal costs of c.$225m and the need for its parent company to seek protection from its creditors in the US.
Natura to maintain ownership of Avon?
Last year Natura sold the Body Shop business to private equity house Aurelius group in a deal worth c.£200m. It now appears set to bid to retain Avon’s business and assets as part of the marketing exercise to be conducted under cover of the Chapter 11 protection.
The statutory restructuring plan, introduced into UK law by amendments to the Companies Act 2006, via the Corporate Insolvency and Governance Act 2020, has previously been compared to US Chapter 11 bankruptcy. Representing, as it does, a “debtor in possession” solution to insolvencies. However, the current potential buyback of Avon’s business by Natura appears more analogous to a traditional pre-pack administration, assuming of course that Natura represents the highest bidder.
Whilst this may cause consternation to the company’s creditors, if recent reports are to be believed, it is anticipated that the company’s workforce will remain unaffected and the brand will continue to trade through the insolvency process.
How can Talbots support with insolvency?
At Talbots Law we are experienced in advising creditors, directors and lenders in both contentious and transactional insolvency situations so please do not hesitate to get in touch with one of our insolvency and restructuring specialists who will be happy to assist you and your business.
Call 0800 118 1500 or email newbusiness@talbotslaw.co.uk
DISCLAIMER
the contents of this blog or any other published by Talbots law cannot be considered as legal advice and should therefore not be acted on without prior consultation with a qualified solicitor or legal professional.