Insolvency In The Fashion Industry: The Hidden Value Of Brands In Crisis Companies In Brazil

The global fashion industry is going through one of its most turbulent phases in recent decades. In 2025, McKinsey and Business of Fashion's State of Fashion report recorded that only 20% of industry executives expected consumer sentiment to improve, while 39% projected worsening market conditions. Revenue growth stabilized in low single digits, and consumers, affected by years of high inflation and economic uncertainty, began to migrate en masse to the second-hand market and lower-priced alternatives: according to the same study, 64% of US consumers were already downtrading in the third quarter of 2024, exchanging premium brands for more affordable options.

This deterioration of the global scenario finds a direct parallel in Brazil, but with local aggravating factors. The Selic rate, which ended 2025 at 15% per year, the highest in 19 years, compressed margins, made debts more expensive and restricted credit. The result was a historic number of requests for judicial reorganization: more than 2,200 lawsuits in 2024, surpassing the previous record of 2016, according to Serasa Experian. In 2025, the stock of companies under judicial reorganization jumped from 4,568 to 5,680 companies, according to data from the consultancy RGF & Associados, a growth almost twice as high as in the previous year. And among the sectors that appear most in these statistics is clothing retail.

Despite this reality, when fashion companies face a financial crisis, legal analysis still tends to follow a traditional logic, focused on tangible assets, overdue liabilities, and inventory liquidation. This approach, while necessary, ignores what often represents the greatest value of the business: the brand. It is where reputation, consumer base, market positioning, and potential for future economic exploitation are concentrated. This article proposes a more strategic reading of insolvency in the fashion sector, based on the recognition of the brand as a central asset in scenarios of crisis, judicial reorganization and bankruptcy.

A Market in Accelerated Restructuring

The global fashion market has seen a wave of insolvencies, consolidations and restructurings that have redefined the industry over the past two years. In the United States, Forever 21 entered Chapter 11 for the second time in 2025, just six years after the first filing, even after restructuring attempts via partnerships with major fast fashion players. Claire's, a global accessories retailer, had operations in the U.S., British and French markets simultaneously in court protection proceedings. Pat McGrath Labs, one of the world's most valued beauty brands, filed for bankruptcy in January 2026 revealing more than $50 million in liabilities. In all these cases, the asset that attracted investors and enabled negotiated exits was not the inventory or the points of sale, it was the brand.

The Hudson's Bay Company case accurately illustrates this logic. After 355 years of history and the liquidation of all its 96 brick-and-mortar stores, the company ended 2025 with an asset worth $30 million: its intellectual property, trademarks, domains, names, and decades of loyalty program data, acquired by Canadian Tire. Retail has disappeared. The brand and the intangibles survived and generated returns to creditors.

In Brazil, the movement is different, but convergent. The fashion sector has undergone accelerated consolidation. In 2024, the merger between Arezzo & Co. and Grupo Soma created Azzas 2154, a conglomerate with revenues close to R$ 12 billion, more than 2,000 stores and a portfolio that includes brands such as Arezzo, Farm, Animale, Schutz and Reserva. The operation, carried out via an exchange of shares, promised to create one of the largest fashion groups in Latin America. However, the first results revealed the difficulties inherent in integration: the combined market value fell by about 20%, gross debt rose from R$2.65 billion to R$3.24 billion, and departures from strategic brands, such as Reserva, in December 2024, impacted market confidence. Rumors about the merger moving the market in 2025, although the company denied them.

This scenario reveals something structural: even solid, capitalized companies face difficulties when brand integration is poorly managed. For creditors, investors and lawyers, the lesson is clear, the value of individual brands can outweigh the value of the group, and the preservation of these assets in crisis scenarios is decisive for the economic result.

Why Fashion Fails in Different Ways

Fashion companies do not go into crisis in the same way as traditional industries. The deterioration is usually simultaneous on multiple fronts: operational, reputational, and financial. And it happens quickly.

The sector's business model imposes permanent structural pressure. There are short collection cycles, inventory with limited commercial shelf life, and the need for upfront investment in creation, production, marketing, and distribution before any financial return. A demand forecasting error or a drop in sales at one station can jeopardize the cash needed to finance the next collection, and the next collection is, in many cases, the only asset capable of turning the company around.

The fashion chain is also fragmented and interdependent. A single brand can depend on dozens of input suppliers, workshops, carriers, digital platforms, multi-brand retailers, marketplaces, and financial operators. When the crisis sets in, the delay in paying suppliers compromises production; the lack of delivery breaks contracts with retailers; Cutting marketing weakens brand perception. Each rupture aggravates the following ones.

In the current Brazilian environment, these factors add to severe macroeconomic pressures. With the Selic at 15% per year, the average cost of credit for companies reached 1.9% per month in October 2025, a level that makes refinancing unfeasible for any operation without a robust balance sheet. The quarterly report by RGF & Associados recorded that the percentage of companies that left judicial reorganization directly for bankruptcy jumped from 17% in 2024 to 29% in 2025, evidence that many arrive at the process too late, without free assets to guarantee new capital. In the list of the most affected sectors, the manufacture of garments appears among the three with the highest volume of orders.

The Brand as an Asset — and the Problem of Accounting Invisibility

In the fashion industry, the brand is not a detail of the business. She's the business. It is the brand that transforms fabric into desire, product into identity, transaction into belonging. From a legal point of view, it is protected as an industrial property right before the BPTO. From an economic point of view, its value goes far beyond the record: it includes accumulated reputation, market recognition, consumer base, narrative, digital presence, and expectation of continuity.

The problem is that this figure rarely appears in financial statements. The Brazilian accounting system historically undervalues intangibles; a brand built over decades can appear on the balance sheet for a derisory value or simply not appear at all.

This creates a trap in insolvency proceedings: creditors and trustees make decisions based on an incomplete picture of the estate. They liquidate depreciated inventories, ignore digital assets, and allow the brand to deteriorate in the process, losing the very element that could generate the greatest return.

International experience demonstrates the error of this approach. When Barneys New York went bankrupt, its inventories and outlets generated limited returns. The asset that attracted buyers and enabled transactions was the brand, its luxury positioning, its high-net-worth client base, and its curation history.

Similarly, in the restructuring of Pat McGrath Labs, the investor who provided $10 million in funding during Chapter 11 process conditioned the investment on a commitment that the founder would remain as creative director, thus recognizing that the company's value was tied to the brand's identity, not its physical assets.

In Brazil, the strategic evaluation of the brand must be incorporated into the legal analysis from the beginning of any crisis. This means checking registrations with the BPTO, mapping licensing agreements in force, identifying ongoing disputes, evaluating digital presence, domains, social networks, customer databases, and understanding the effective reputation in the market. Ignoring these elements is not just a technical gap. It is an economic mistake with a direct impact on the recovery of creditors.

Judicial Reorganization: Preserving the Brand is Preserving the Company

The purpose of judicial reorganization is to allow the overcoming of the economic and financial crisis, preserving the company, its social function and the interests of creditors. In the fashion sector, this preservation necessarily involves keeping the brand active and operational.

A judicial reorganization plan for a fashion company that is limited to extending debt and granting discounts without considering the production cycle is doomed to failure. The decisive question is not only the financial viability of the liabilities, but also whether the company will be able to launch the next collection, maintain strategic suppliers, sustain presence in sales channels and continue to exist in the consumer's perception. A brand that disappears from the market for a year or two during a recovery process rarely comes back with the same value.

In this context, the brand can be an active instrument of restructuring, not just an asset to be preserved. It can be licensed to operators with greater financial capacity, used as a central element of an isolated production unit (UPI), offered as collateral for raising DIP financing or structured as a counterpart in agreements with strategic creditors.

The reform of Law 11.101/2005, in 2020, expanded the available instruments, including the introduction of the pre-insolvency stay period, which allows negotiations with creditors even before the formal request. This space is especially relevant for fashion companies, which can start protecting their intangible assets before the lawsuit erodes their value.

For lenders, understanding this mechanism is equally important. The pressure for immediate liquidation of physical assets can generate lower returns than a brand preservation strategy would allow. A lender who understands where the real value of the deal is in a much more favorable position to negotiate, and to recover.

Bankruptcy and Credit Recovery: Where the Value Lies

In bankruptcy, the central issue is maximizing the return to creditors. In the fashion industry, this requires recognizing that value is rarely in physical assets. Off-season inventory, specialized machinery, and points of sale with onerous contracts tend to generate little in liquidation processes. The brand, digital channels, customer base, and licensing agreements in place are the assets that attract strategic buyers.

This imposes a different rhythm of action. The deterioration of a brand can be rapid, if it is associated with default with suppliers, interruption of deliveries or collapse in the consumer experience. Protective measures need to be adopted urgently: preservation of domains and social networks, protection of the customer database, control of licensing agreements in force and monitoring of the misuse of the trademark by third parties during the process.

In credit recovery, the challenge is to identify where value circulates in fashion companies in crisis. Receivables are often not in traditional bank accounts, they are dispersed across marketplaces, acquirers, payment platforms, multi-brand retailers, and distribution agreements. Companies in difficulty may fragment revenues, transfer operations to related structures, or concentrate the economic exploitation of the brand in parallel entities. The creditor who does not map this operational dynamic before acting can frustrate its execution.

Measures such as the seizure of receivables in marketplaces, the issuance of official letters to acquirers and payment platforms, the investigation of licensing agreements, and the analysis of recent corporate transactions are relevant instruments, but they require sectoral understanding to be used effectively.

Fashion Law and Insolvency: A New Frontier

Fashion Law is still mostly associated with intellectual property, contracts with influencers, image rights and protection of creations. These issues are relevant, but they represent only part of the legal complexity of the sector. As the industry faces structural crises, and the data for 2024 and 2025 make it clear that this phase is not temporary, the demand for professionals capable of working at the intersection between fashion and insolvency is growing.

This combination is rare and valuable. The lawyer who dominates judicial reorganization, bankruptcy and credit recovery, but also understands the economic functioning of the fashion chain, its cycles, its intangible assets, its contractual structure and its digital dynamics, occupies a space that the Brazilian market has not yet filled.

In Brazil, where the volume of judicial reorganizations in clothing retail grows consistently and where major restructurings such as Azzas 2154 highlight the complexity of the sector, this profile has concrete demand.

Fashion companies, investors in distressed assets, credit funds, suppliers and judicial administrators need advice that goes beyond the domain of traditional legal instruments. They need someone who understands that the value of a fashion company can be entirely in an asset that does not appear on the balance sheet, and who knows how to identify, protect and monetize that value at the right time.

Conclusion

Insolvency in the fashion industry requires a change in perspective, and market data makes this need urgent. With more than 5,600 companies in judicial reorganization in Brazil by the end of 2025, with clothing retail among the most affected sectors and with an interest rate that makes simple refinancing unfeasible, the cycle of crises in the sector tends to intensify before it improves.

In this context, the brand emerges as the most strategic and most neglected asset of insolvency proceedings in fashion. While international experience, from Forever 21 to Hudson's Bay, demonstrates that the highest returns in restructuring processes come from the intelligent disposal of intangibles, Brazil still operates mostly in the logic of liquidating physical assets and extending liabilities. There is an evident mismatch between the economic reality of the sector and the prevailing legal approach.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.