If you've stumbled upon this guide, it's likely you've been searching for a while for a solution to this bug. So did I. And none of the methods worked. That is, until I found a reply in a discussion thread by user "mr_silent_bob". All credit for this fix goes to them, because they, as far as I can tell, were the one to solve this problem. I am posting it here for easy accessibility, as other preexisting guides are inaccurate/unhelpful on this matter. Below is their instructions, which after following myself, I can confirm that I was able to activate the umbrella in game and progress my save further.

1. Open with editor: This PC > Documents > (My Games) > Alice Madness Returns > AliceGame > Config > AliceInput.ini
Alternative: C: > Users > (your username) > Documents > (My Games) >
Alice Madness Returns > AliceGame > Config > AliceInput.ini

Change row: Key_Block = TriggerBlock
to: Key_Block = TriggerBlock true | OnRelease TriggerBlock false
and save the file.

2. Open with editor: (Installation-Path) > Alice Madness Returns > AliceGame > Config > DefaultInput.ini

Change row: Key_Block = TriggerBlock
to: Key_Block = TriggerBlock true | OnRelease TriggerBlock false
and save the file.

3. start the game and go to the keyboard configurations > Camera
Use "hold" for target aiming, not toggle that works not as good as hold.

4. in the game you have to hold the aiming key and then hold the block key and the umbrella rotates




Again, special thanks to Steam user "mr_silent_bob" for their help and service to the community. Cheers.