Attempting to recover from a $180 million fine for accounting fraud, Luckin Coffee, a Starbucks competitor China, filed for U.S. bankruptcy protection. Luckin on Feb. 5 filed for Chapter 15 bankruptcy protection in New York.
The coffee chain, headquartered in Beijing, said bankruptcy actions should not disrupt daily operations, and will continue tomeet trade obligations in the ordinary course of business, including paying suppliers, vendors and employees…”
Luckin tried to position itself as a local competitor to Starbucks, opening thousands of stores in its first two years in business. The company was founded in China in June 2017 and filed for a US-listed IPO in April 2019. It said it had 2,370 stores and expected to open another 2,500 within the year. Starbucks currently has about 4,000 stores in China.
The U.S. Securities and Exchange Commission said that in April 2019 and January 2020 Luckin "intentionally fabricated" more than $300 million in retail sales.
The SEC alleged that Luckin created bogus transactions with three different purchasing schemes, and employees tried to hide those sales by adding $190 million in inflated expenses. In December, the SEC charged the company with defrauding investors and Luckin agreed to a $180 million fine.
Luckin’s Feb. 5 restructuring statement said:
The Joint Provisional Liquidators (the “JPLs”) of Luckin Coffee Inc. (the “Company”) (OTC:LKNCY), Alexander Lawson of Alvarez & Marsal Cayman Islands Limited and Wing Sze Tiffany Wong of Alvarez & Marsal Asia Limited, today filed a verified petition under chapter 15 of title 11 of the United States Code (the “Chapter 15 Petition”) with the United States Bankruptcy Court for the Southern District of New York (the “U.S. Bankruptcy Court”). The Chapter 15 Petition seeks, among other things, recognition in the United States of the Company’s provisional liquidation pending before the Grand Court of the Cayman Islands (the “Cayman Court”), Financial Services Division, Cause No. 157 of 2020 (ASCJ) (the “Cayman Proceeding”) and related relief. [The Company previously disclosed the commencement of the Cayman Proceeding on July 15, 2020.]
The Company is negotiating with its stakeholders regarding the restructuring of the Company’s financial obligations, to strengthen the Company’s balance sheet and enable it to emerge from the Cayman Proceeding as a going concern, for the benefit of all stakeholders. The relief sought in the Chapter 15 Petition is an important component of the Company’s restructuring. This relief will promote centralized administration of the Company’s assets by permitting coordination between the Cayman Court and the U.S. Bankruptcy Court, to protect the interests of stakeholders while facilitating the Company’s restructuring.
All Company stores remain open for business, offering products with high quality, affordability and convenience to its customers in China. The filing of the Chapter 15 Petition is not expected to materially impact the Company’s day-to-day operations. The Company continues to meet its trade obligations in the ordinary course of business, including paying suppliers, vendors and employees.