Katie Catanese and John Simon Discuss Bankruptcy Battles for Beauty Brands

Foley & Lardner LLP partners Katie Catanese and John Simon are quoted in the Vogue Business article, “Surviving bankruptcy: A guide for beauty brands,” discussing the financial challenges many beauty companies are facing.

In addition to changing market dynamic, credit markets are “closing up” and “people can’t get money as freely and as easily as they have in the past,” Simon explained. “Many companies in fashion and beauty have struggled with sales and paying their debts. This has created conditions that are ripe for company insolvencies in the industry. We’re definitely seeing more of them.”

“You may have had some flexibility a few years ago when the economy was much better, but today that flexibility is diminishing,” Catanese said.

She explained the insolvency options companies have and said the decision of which path to take is largely driven by both the size of the company and its creditor base and the urgency of the situation. “We’re looking at what stop sign the company is facing,” Catanese commented. “Do they have a lawsuit that’s pending? Do they have a landlord that doesn’t want to negotiate?”

As a more consolidated beauty market may emerge, Catanese said, “The strong will survive, and they’re going to buy the weak, and we’re going to end up with new kinds of companies.” She emphasized the importance of a caution approach. “Don’t hire thousands of employees and grow all your product lines because of all the economic factors and the recession present,” she added. “With increased interest rates, closing credit markets and ongoing supply chain issues, there are a lot of things that make it hard to do business.”

Simon noted that companies that emerge from bankruptcy may not have a say in their new owners, so the responsibility is on the buyer to “really understand the brand they’re acquiring, the risks and why it was troubled and then address those [factors] in the structuring and planning post-transaction.”

“A smart buyer can avoid a lot of the problems in the past and profit from a good sale that otherwise may have been a liquidated business,” he added.

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