Makeup brand Pat McGrath Cosmetics — commonly known as Pat McGrath Labs and founded by makeup artist Patricia McGrath — filed for Chapter 11 bankruptcy protection, according to a voluntary petition filed Jan. 22 in the Southern District of Florida.
Consumer demand for the brand persists, but its financial challenges developed from “an unsustainable capital structure, accumulated legacy liabilities, and liquidity constraints,” CEO McGrath said in a separate declaration filing on Monday. The company has estimated liabilities in a range from about $50 million to $100 million.
Pat McGrath Cosmetics aims to stabilize operations and reset its balance sheet through the bankruptcy process as it evaluates restructuring options, including a “potential capital infusion or a transaction involving the business,” per the filing.
The company is requesting approval of $1 million in DIP financing provided by McGrath herself.
McGrath said the brand faced a disagreement about material obligations with one lender, GDA PMG Funding, wherein the brand allegedly received $17.5 million in loan advances, but the lender asserts there is a $43 million outstanding balance, according to the filing. GDA filed an objection to the proposed DIP financing on Tuesday, stating that GDA is owed $30.5 million in principal, exclusive of certain interest and fees.
“The proposed DIP facility by founder, Dame Patricia McGrath, is the product of an unprincipled, last-ditch effort to avoid a valuemaximizing Article 9 sale of the business, to the detriment of the employees, suppliers, vendors, customers, and creditors of the Debtor,” GDA’s objection states.
GDA also alleges that McGrath and her company “appear to have taken out various loans from hard-money lenders, at exorbitant interest rates, that also double pledge GDA’s Senior, Secured collateral,” per the objection. The lender alleges that those loans were directed to McGrath’s personal accounts instead of toward the Pat McGrath Cosmetics company.
Instead of the $1 million proposed financing plan, GDA says it is prepared to serve as the DIP lender and offer a $10 million DIP loan at a lower interest rate.
The financial arrangement with GDA ultimately led to the lender commencing a sale of the brand’s assets earlier this month, without the direct involvement of Patricia McGrath herself, according to McGrath. That auction is now “terminated” as a result of the Chapter 11 filing, according to a Tuesday press release.
“This Chapter 11 will enable me to remain in the driver's seat and keep the Company's vision focused,” McGrath said in the press release. "For several months, I have acted at the behest of my lenders but now it's time to reset, start fresh, and get back on mission of bringing the highest quality makeup to the marketplace.”
The beauty brand entered into a loan agreement in April 2025 with GDA that was intended to serve as a short-term solution for Pat McGrath Cosmetics’ financial issues, according to the Chapter 11 declaration filing. Pat McGrath Cosmetics then amended the agreement with GDA a few months later that “significantly increased GDA’s control over” incoming revenues.
GDA set up a bank account and required the brand to direct all customer and counterparty payments to that account, pursuant to the signed amendment. Pat McGrath Cosmetics does not have access to the account, and GDA “retained discretion over the disbursement of funds” from the bank account, per the filing.
The cash management restrictions under the agreed upon amendment and the brand’s lack of access to incoming revenue impaired its ability to maintain inventory and pay vendors, per the filing from McGrath.
Pat McGrath Cosmetics “is sitting on millions of dollars of orders that cannot be fulfilled because of cash diverted strictly for GDA’s benefit,” McGrath said in the bankruptcy declaration.
In October, GDA notified the brand of defaults and requested payment immediately. The lender around this time also began the auction process for the brand without Pat McGrath Cosmetics' consent, per the filing.
While the beauty brand does not dispute that the lender had the ability to commence the auctioning process under Article 9 of the Uniform Commercial Code, McGrath alleges GDA may not have provided required notification of the move to either the brand or McGrath herself.
“Accordingly, in addition to the general need for restructuring described above, [Pat McGrath Cosmetics] commenced this Chapter 11 Case to prevent the irreparable harm to the Debtor that would have resulted from what the Debtor believes would have been a commercially unreasonable Article 9 sale being conducted by GDA,” McGrath said.
For GDA’s part, the lender asserts that McGrath’s DIP motion “proposes no budget for a plan process or an orderly wind-down, let alone any runway time to develop a plan, and no guidance as to an exit strategy, and thus, evades the usual checks and balances of confirmation requirements or otherwise.”
The lender also believes McGrath has been a “reckless” steward of the cosmetics company’s assets, taking out additional hard-money loans with interest rates between 75-140% instead of negotiating with GDA on recapitalization efforts over the past several months.
