The company is expected to lay off 350 of staff, reports dailymail.co.uk.
Johnson, who will turn 70 in August, will remain creative director of the brand, however, and will continue to design for her moderately priced Betsey Johnson sportswear and accessories labels, which are sold in Macy's.
The designer apparently plans to have a show during Fashion Week in September and will soon start shooting a reality show, “Betsey and Lulu”.
Johnson has made the decision with Steve Madden, founder of Steven Madden Ltd, which took over a $48.8 million loan to the company.
Madden says that the group will continue to support the Betsey Johnson brand and ensure existing orders will be produced and ship on time.
"While this particular licensee may be closing, the Betsey Johnson brand is stronger than ever, with a thriving wholesale business across a range of product categories,” Madden said.
“As the owners of the Betsey Johnson brand, we at Steve Madden remain firmly committed to Betsey Johnson - the designer, her vision and our growing wholesale business - which is up over 50 percent so far for 2012,” he added.