A Delaware bankruptcy judge has conditionally approved Avon Products Inc.'s plan to resolve its talc-related liabilities through a liquidating trust, but ordered revisions to address insurer concerns about the treatment of insurance policies and rejected a controversial "gatekeeping" provision that would have required court approval for certain future claims.
In a comprehensive 95-page memorandum opinion issued August 21, U.S. Bankruptcy Judge Craig T. Goldblatt found that the cosmetics company's reorganization plan was proposed in good faith and garnered overwhelming creditor support, with 100% of voting talc claimants accepting the proposal. However, the judge required modifications to ensure the bankruptcy process remains "neutral" regarding insurance coverage disputes.
Background on Avon's Talc Crisis
Avon Products and its affiliates filed for Chapter 11 protection in Delaware federal court in August 2024 under case number 24-11836, driven by mounting talc-related personal injury claims. The company has faced approximately $225 million in defense and settlement costs since 2010, when plaintiffs began asserting that Avon's talc-containing cosmetic products were contaminated with asbestos and caused mesothelioma and other diseases.
The filing surge against Avon coincided with Johnson & Johnson subsidiary LTL Management's bankruptcy, which stayed talc claims against J&J. As of the petition date, 386 talc cases remained pending against Avon, with the company holding $78.1 million in outstanding liquidated liabilities from settlements and two adverse jury verdicts totaling $70.5 million.
Notably, the Avon entities in bankruptcy have not operated in the United States since 2016, when they spun off their domestic assets. The debtors are now U.S. holding companies owned by Brazilian parent Natura & Co., which owed $1.271 billion to Natura as of the filing date.
Plan Structure and Creditor Support
Under the confirmed plan, substantially all debtor assets will transfer to a liquidating trust administered by former bankruptcy judge Melanie Cyganowski. The trust will use approximately $31 million in cash, insurance recoveries, and proceeds from other causes of action to pay creditors, including talc claimants.
The plan establishes detailed "trust distribution procedures" for resolving talc claims outside the traditional tort system. Mesothelioma claimants can choose expedited review for $10,000 or individualized review capped at $3 million, while other disease claims are capped at $6,000. The procedures require proof of diagnosis and exposure to Avon products but streamline causation requirements compared to traditional litigation.
Creditor support was overwhelming. All class 4 talc claimants who voted supported the plan, while class 3 general unsecured creditors voted 90.71% in favor by number and 96.93% by dollar amount. Over 90% of general unsecured creditors elected to receive the same treatment as talc claimants rather than take fixed distributions.
Insurance Neutrality Principles
A central issue involved multiple insurer objections arguing the plan would give the liquidating trust improper advantages in future coverage litigation. Judge Goldblatt established that bankruptcy should be "neutral" regarding insurance rights, meaning neither party should gain windfalls from the bankruptcy filing.
"The basic transaction involved in the creation of a post-confirmation liquidating trust is simply the creation of a trust under state law and a transaction under which the debtor's assets are transferred to the trust," the judge wrote. "While this commonly occurs in a bankruptcy case, there is no reason why it cannot occur outside of bankruptcy."
The court ruled that trust distribution procedures represent voluntary settlements between claimants and the trust, not judicial determinations of liability. Insurers retain full rights to contest coverage based on policy terms and conditions, including arguments about cooperation requirements and settlement procedures.
However, the judge noted that Section 1123(a)(5)(B) of the Bankruptcy Code preempts state anti-assignment clauses, allowing transfer of insurance policies to the trust despite contractual restrictions - though the policies remain subject to their original terms and conditions.
Objections Addressed
Good Faith Standard: Despite finding a provision restricting payments to U.S. and U.K. exposures "looks like an improper effort by certain plaintiffs' lawyers to protect their turf," Judge Goldblatt concluded the plan was proposed in good faith based on the totality of circumstances and lack of objections from affected claimants.
Voting Issues: Insurers challenged voting procedures for debtor entities with no votes cast, but the court upheld a solicitation order provision deeming non-voting classes as accepting the plan, noting the rule was approved without objection after proper notice.
Bond Trustee Fees: The U.S. Trustee objected to paying $850,000 in indenture trustee fees, arguing it circumvented substantial contribution requirements. The judge approved the payment since all affected creditors voted to accept the plan, making discrimination objections moot.
Gatekeeping Provision: The court rejected a provision requiring bankruptcy court approval before pursuing claims that "could reasonably be characterized" as released or exculpated, finding no statutory authority for such broad injunctive relief.
Significance and Next Steps
The decision provides important guidance on insurance neutrality in mass tort bankruptcies, emphasizing that confirmation orders should neither expand nor contract parties' non-bankruptcy rights. The approach differs from some prior cases by focusing on preserving coverage disputes for future state court litigation rather than attempting to resolve them in bankruptcy.
Judge Goldblatt directed the parties to meet and confer on revised plan language incorporating his rulings, noting none constitute material changes requiring re-solicitation. The court indicated it would promptly resolve any remaining disputes through status conferences.
The Avon case joins a growing number of talc-related bankruptcies following increased litigation against cosmetic and pharmaceutical companies, highlighting ongoing tensions between efficient claim resolution and preserving traditional insurance relationships.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 95 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.