The Mean Girls star showed off her style sense by designing a line for the Parisian fashion house, but her creations were mauled by the critics, with style bible Women's Wear Daily calling the collection "an embarrassment".
The company's founder Emanuel Ungaro, who is no longer involved with the firm, also criticised Lohan's designs, labelling the runway show a "disaster."
Lohan has subsequently been hit by rumours of infighting at Ungaro as officials decide whether to continue her contract - New York Post gossip column PageSix reports chairman Asim Abdullah has been urging CEO Mounir Moufarrige to drop the actress.
But a spokesperson for Abdullah insists the stories aren't true - admitting Lohan will continue with the label, despite the negative reviews.
The rep tells the publication, "Such an insinuation is totally absurd."