Avon Products files for bankruptcy to tackle scores of talc lawsuits with cancer claims

15 Aug 2024 --- Avon Products, which became famous for its door-to-door cosmetics sales, files for Chapter 11 bankruptcy protection at the US Bankruptcy Court of the District of Delaware. Brazilian beauty conglomerate Natura & Co acquired the company four years ago but, according to court papers, filed for bankruptcy due to pandemic pressures and scores of lawsuits alleging its talc products caused cancer. 

Avon Products says it has already spent around US$225 million in settlement payments to fight hundreds of lawsuits claiming its products contained cancer-causing asbestos. According to a declaration filed at the court, chief restructuring officer Philip Gund outlines the company’s mounting legal liabilities: 

“The Company has, in recent years, experienced a significant decline in revenues and increased liquidity constraints due to several economic factors and operational challenges, including, among other things, increased market competition, the COVID-19 pandemic, and the Russia-Ukraine war. In addition, the debtors face mounting liquidity pressures related to legacy talc liabilities arising out of their former US operations.”

Gund acknowledges that debtors resolved many cases — which they view as without merit — but that more help is needed after “two recent negative verdicts further strained the debtors’ liquidity and resources. The debtors have limited insurance coverage with respect to their legacy talc liabilities due to, among other reasons, insurer insolvencies and certain asbestos coverage exclusions.” 

Avon Products seeks bankruptcy protection to counter mounting lawsuits and operational challenges.Since its first talc claim in 2010, Avon has faced nearly 400 lawsuits. Its debts include US$1.29 billion owed to lenders and bondholders.

Avon’s twists and turns
Personal care conglomerate Natura & Co is also a lender to Avon Products and promised to give up to US$43 million in proposed financing as part of the bankruptcy process. Its plan to split off its Avon holdings into a separate business is now on hold, and it states that its international business, which stretches across Europe, Africa and the Middle East, is not associated with the legal proceedings.

A spokesperson reached out to Personal Care Insights to clarify that “Avon, the brand, and the non-U.S. operations worldwide led by CEO Kristof Neirynck did not file for Chapter 11.” 

Neirynck also issued a statement after Avon Products' filing to explain how he intends to move the brand forward:

“We remain focused on advancing our business strategy internationally, including modernizing our direct selling model and reigniting the brand to accelerate growth. Since becoming CEO earlier this year, I am increasingly energized by our strengths and opportunities, supported by our valued associates and nearly two million representatives around the world.”

The Avon Company, which again operates as an independent entity in the US and Canada and is not part of the proceedings, is owned by LG Household & Health Care (LG H&H) and is not affiliated with any other Avon entity.

CEO Sun Moon acknowledges confusion about the company’s business structure and ensures The Avon Company “is operating as usual [having] charted its own course under parent company LG H&H.”

The Avon brand was created in the US by traveling door-to-door salesman David McConnell, and it eventually became a household name with the slogan “Avon Calling.”

Johnson & Johnson lawsuits
While Avon Products is the latest company seeking bankruptcy protection to tackle mounting lawsuits associated with talc products, Johnson & Johnson (J&J) is reportedly ready to settle one of its outstanding talc cases in a deal worth about US$6.5 billion over 25 years.

The healthcare giant has previously said that its talc-based powders never caused cancer and that it appropriately marketed its baby powder for over 100 years. 

J&J’s proposal is still likely to face legal challenges from plaintiffs opposing the terms of the current deal, but the recent voting could help J&J if it asks a judge again to grant bankruptcy protection. A federal appeals court blocked two of its previous bids to get the bankruptcy protection sign-off in New Jersey, where the company is based.

By Anita Sharma