Heloísa Nogueira and Thamara Belinatti
Avon Products, a subsidiary of the Natura Group and a renowned cosmetics company, has filed for Chapter 11 protection in the United States to address its outstanding debts. This legal mechanism allows the company to reorganize financially while protected from creditor actions; the instrument, utilized within the U.S. legal system, is similar to judicial reorganization in Brazil and offers the company a chance to restructure its finances and continue operations throughout the process.
In a statement to the market, Natura Group revealed that, despite being Avon's largest creditor, it will continue to support the brand during its restructuring process by providing approximately US$ 43 million in financing; it also intends to acquire Avon's international operations—excluding the United States—for US$ 125 million.
The financing will take the form of DIP (Debtor-in-Possession) funding, a type of financial injection granted under court supervision during bankruptcy protection proceedings. Natura emphasized that this support will not affect Avon's operations outside the US, including in Latin America, where the brand is distributed by Natura. The integration of the two brands is proceeding steadily.
Natura Group also announced a net loss of R$ 859 million for the second quarter of 2024, an increase compared to the same period last year. This loss includes R$ 725 million related to Avon's restructuring, which hindered the realization of expected gains from optimizing Avon's structure. Excluding this impact, Natura would have posted a profit of R$ 162 million.
Avon's filing for bankruptcy protection is being hailed by international media as a "masterstroke." This is because a significant portion of its liabilities stems from court judgments regarding liability claims from consumers who allegedly developed cancer after using talc-based products that were reportedly contaminated with asbestos.
Avon denies these allegations and is appealing the two rulings against the company: the "Chapman vs. Avon" case, involving a US$ 46.3 million judgment, and the "Ramirez vs. Avon" case, involving US$ 24.5 million.
The filing of the Chapter 11 petition will result in the claims becoming subject to the reorganization process based on the underlying triggering event; consequently, these multi-million-dollar judgments will be reduced through the Reorganization Plan to be submitted and approved.
At a global level, the Natura Group needed a strategy to reduce the growing liabilities of the recently acquired company, Avon (an acquisition finalized in January 2020). In February 2024, Natura considered the possibility of spinning off Avon; however, it appears this option has been put on hold until the restructuring process in the US is concluded.
