(Bloomberg) -- Beauty brand Avon Products Inc. should slow down its bankruptcy case so that people who allegedly got cancer from the company’s products have time to study any potential payout plan, a lawyer said in court Wednesday.
Victims deserve a special committee to represent them in the Chapter 11 case, said Todd Phillips, a lawyer for people who claim Avon’s talc products are responsible for their health problems. The company faces nearly 400 lawsuits alleging that some Avon cosmetics contained asbestos, a toxic substance that was once used in everything from automobile brake pads to ceiling tiles.
“It all seems to be moving very quickly,” Phillips told US Bankruptcy Judge Craig Goldblatt during Avon Products’s first hearing in the case. “There needs to be time” for victims to form a committee and study the company’s reorganization proposal.
Goldblatt declined to take any action on the request for a panel. Under US bankruptcy law, if the Office of the US Trustee, which oversees corporate insolvency cases, refuses to appoint a committee, victims can ask Goldblatt to intervene.
Avon Products operates outside the US and is no longer related to the company that does business in America. The lawsuits are based on sales that occurred until 2016, when Avon Products sold its US operations. Avon Products is owned by Brazil-based Natura & Co, according to court documents. The US version of Avon is not in bankruptcy and is owned by a different company.
Goldblatt approved Avon Products’s request to borrow at least $12 million from its parent to help it pay for the restructuring case. The company will return to court in the coming months for permission to borrow more cash, Avon Products lawyers said.
The US Trustee will need a week or two to decide whether the case should have one creditor committee that includes people suing Avon Products, or two panels, said Linda Richenderfer, a lawyer with the Office of the US Trustee. One committee would represent alleged cancer victims and one would be for traditional creditors like suppliers and landlords.
The Avon brand became famous in the 20th century for its door-to-door saleswomen with their catch phrase “Avon Calling.” Today, the international brand said it was forced to file bankruptcy, in part because of the pandemic and to confront a wave of lawsuits alleging talc in its products caused cancer.
The company spent $225 million defending personal injury lawsuits and settlement payments and doesn’t have “sufficient liquidity to litigate and/or settle” the cases, its Chief Restructuring Officer Philip Gund said in court filings. The company expects the number of lawsuits “will only continue to increase absent a permanent solution.”
Avon Products is the latest company to seek bankruptcy in order to deal with lawsuits stemming from the sale of talc products. Most notably, Johnson & Johnson has tried to settle with plaintiffs using bankruptcy multiple times and is yet to succeed.
The company has $1.3 billion of debt mostly owed to its parent, Natura, which bought Avon Products in 2020.
While in bankruptcy, Avon Products will try to sell its assets, with Natura offering to buy it for $125 million in the absence of higher offers. As part of its bid, the Brazilian company will write off $530 million of debt it’s owed and provide an additional $43 million to fund the bankruptcy, according to the filings.
The Avon brand in the US is owned currently by LG Household & Health Care Ltd.
The bankruptcy is AIO US Inc., 24-11836, US Bankruptcy Court for the District of Delaware.
--With assistance from Jeremy Hill.
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