(Bloomberg) – Chinese coffee chain Chain, Luckin Inc., filed for bankruptcy in Chapter 15 in New York, less than a year after the company said more than a quarter of its business could have been forged.
The move is intended to protect the company from lawsuits by U.S. creditors, including bondholders who owe $ 460 million and shareholders. According to a statement issued on Friday, Luckin’s coffee shops in China will remain open and the submission will not be affected by the submission.
“The company continues to meet its trading obligations in the ordinary course of business, including paying suppliers, sellers and employees,” the statement said.
In U.S. court documents, Luckin asked a federal judge in Manhattan to allow him to restructure his finances through a court case filed in the Cayman Islands, where the company was incorporated. The process is already underway and, according to court documents, calls for negotiating a settlement with shareholders and mortgagees.
The filing of the bankruptcy covers a saga in which the coffee chain, once considered a challenge to the dominance of Starbucks Corp. in China, he fired his chairman and CEO, and paid hundreds of millions in fines to both Chinese and U.S. regulators. and saw the stock fall 90% before being removed by Nasdaq.
The U.S. Securities and Exchange Commission fined the company $ 180 million in December after finding that it had deliberately produced more than $ 300 million in sales from April 2019 to January 2020. The company never denied the SEC’s allegations. officially acknowledge or deny.
Luckin’s alleged misunderstanding, involving the wrong income, expenses and operating loss, was all done to give investors the false impression that the company was experiencing tremendous growth, the SEC said.
Last year, the company acquired law firm Kirkland & Ellis and restructuring advisor FTI Consulting Inc. hired to investigate the claims. Based on their findings, the company fired its chief executive and chief operating officer, according to the U.S. court file.
The collapse of the chain led to a re-examination of Chinese companies selling shares on US stock exchanges, without complying with the rules that require their audits to be inspected by US regulators. The outage has also raised new concerns for global investors about China’s corporate governance, as it helped the US Congress pass legislation late last year that could lead to Chinese companies being kicked out of US markets.
Luckin, founded in 2017, has operated 3,898 stores as of November 30, with another 894 stores for ‘partnerships’. The chain attracts customers by offering massive discounts and trying to reach 10,000 places by 2021.
The coffee – cheaper than Starbucks and sold from takeaway kiosks near urban professionals – is still popular in China. Sales grew by 35.8% in the quarter ended September 30 compared to a year ago, according to a document posted on its website.
“This submission does not mean that Luckin will close,” said Jason Yu, managing director of Kantar Worldpanel Greater China. “It can use the filing to waive debt, close unprofitable operations and concentrate on its core business.”
The case is Luckin Coffee Inc., 21-10228, US Bankruptcy Court, Southern District of New York, Manhattan. Click here to view the Bloomberg Law file.
(Updates with mortgage debt in second paragraph and internal investigation in eighth paragraph.)
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