The designer who became a global brand has been declared bankrupt after years of court action and financial bad luck

Karen Millen is used to seeing her name in lights. With 400 outlets spread across 65 countries, there is even a store that bears the Kent-born designer’s name in Mongolia.

But last week Karen Millen, the woman, became famous all over again for the wrong reasons, after suffering the humiliation of being declared bankrupt over an unpaid tax bill.

Until the public airing of her financial difficulties, Millen had appeared to be living a fashion fairytale. She had grown up in a council house on a Maidstone estate but had become a millionaire many times over by the time she was in her 30s, after the eponymous fashion label she had started with her husband Kevin Stanford was sold for £95m at the height of the retail boom that preceded the last recession.

But despite receiving £35m for her share of the business – a blockbuster deal that involved Millen signing away the rights to use her own name – the rags-to-riches story returned to rags in the high court after she failed to hand over an estimated £6m that HM Revenue and Customs said it was owed. Millen told the Times her accountants had advised her to use a tax planning scheme, the validity of which was successfully challenged by HMRC in 2010.

Millen has not designed clothes for the company that bears her name for well over a decade, yet she remains forever yoked to the business that she started with Stanford in 1981, when she was just 19. “When I hand over my credit card, people will often say: ‘How funny, you have the same name as the shop,’” she said in a recent interview.

The enterprising couple got the business off the ground with a £100 loan and used the money to buy bolts of cotton with which to make the crisp white shirts that would be their early bestsellers. The first store opened two years later and by the time they sold out in 2004 it had become a chain of 100, retailing a sexy look of tight-fitting dresses and Versace-style bustiers that was firmly plugged in to the fashion zeitgeist.

In the 13 years since Millen sold the company, she has appeared to be living in a bubble, dividing her time between her three children and charity fundraising. She celebrated her 50th birthday by throwing a 1930s-themed party on the Orient Express for close friends that included the models Kelly Brook and Caprice and the entrepreneur Jacqueline Gold. In interviews Millen, who was appointed an OBE for services to fashion in 2008, was often snapped posing by the swimming pool of her immaculate Georgian mansion, which boasted a football pitch and lake. It is now expected to be sold.

Facebook Twitter Pinterest A London branch of Karen Millen in 2000, at the brand’s zenith. Photograph: David Sillitoe/The Observer

Millen says she is “devastated” by bankruptcy but blames Kaupthing, the collapsed Icelandic bank that backed the 2004 deal, rather than her own financial decisions for her current woes. Her story is a stark reminder of the noughties’ high street boom, fuelled by the expansion of Icelandic banks, that would go spectacularly bust during the credit crunch.

Although Kaupthing had made her rich, Millen and Stanford, whose business interests remained linked despite their divorce in 2001, suffered heavy losses after the bank failed during the 2008 banking crisis, taking many of their personal investments with it.

When the couple worked together, Millen had focused on the creative side while Stanford ran the shops. “I was never the driving force behind it,” she told one interviewer. “It was always Kevin. He’s the ambitious one. I’ve just gone along with it.” The same approach appears to have cost her dearly when it came to investing the fortune they made together.

Without the involvement of the founders the Karen Millen stores have kept on going, although the chain is having something of a midlife crisis as millennials opt for a casual look even on nights out.

“The consumer has moved on,” says Lorna Hall, retail analyst at trend forecaster WGSN. “Fashion trends have become more casual and that has sidelined brands like Karen Millen that had a vernacular focused on getting dressed up.”

The shift in the fashion landscape has led to a concerted push by Karen Millen’s new management to shed its “Footballers’ Wives” image by highlighting, among other things, that its clothes are designed at head office in London’s trendy Shoreditch district. However, the most recent accounts available at Companies House show a loss of £10.5m on sales of £161m in the year to the end of February 2016, reflecting the heavy investment involved in the revamp.

“I never wear the clothes,” Millen said in a 2012 interview as she started a legal campaign to win back the right to use her name on new designs.

“Sometimes I find it a little difficult as I have no control over what they design and at times it can be a little embarrassing,” she said, before suggesting the brand had “somewhat stood still” while the clothing was “too heavily branded and overpowering”.

But the action also proved an expensive mistake. Insiders pointed out she had been paid “a lot of money” for her name and in 2016 Millen lost – the judge agreed with the company that letting her use her signature elsewhere would create confusion for shoppers. The ruling left her to foot an estimated £2m-£3m bill for both sides’ legal costs.

Millen and Stanford have pursued several legal claims against the estate of Kaupthing in an attempt to recover the tens of millions they – and many other investors – lost in Iceland’s financial meltdown. The designer says the last nine years have been “one long legal battle” that has left her exhausted and ready to “finally put the past behind me”. It seems Millen is finally letting go of Karen Millen.