Luckin Coffee, China’s homegrown rival to Starbucks, has filed for chapter 15 bankruptcy in the US following accusations of accounting misstatements
The joint provisional liquidators also confirmed that Luckin Coffee’s ongoing restructuring process in the Cayman Islands would continue regardless of the filing for Chapter 15 protection with the US Bankruptcy Court in the Southern District of New York. This is an important part of the company’s attempt to deliver a comprehensive restructuring proposal.
The primary purpose of the Chapter 15 filing is to invoke the automatic stay to prevent the commencement or continuation of claims against the company or other parties in the US while the joint provisional liquidators continue their efforts to achieve a restructuring of the company’s indebtedness.
The Chapter 15 filing also seeks to centralise administration of the restructuring through recognition and enforcement of schemes of arrangement, once approved and sanctioned by the Cayman Islands Court, providing certainty and finality for stakeholders in respect of their claims.
The joint provisional liquidators do not expect the filing will have any impact on the daily operations of the company in China. The company continues to meet its trade obligations in the ordinary course of business, including paying suppliers, vendors and employees.
The Chapter 15 filing is a routine filing in the context of Cayman restructuring involving international jurisdictions and should not be confused with a terminal bankruptcy process involving the winding down, sale or liquidation of the company.
In December, Luckin Coffee agreed to pay a $180m (£132m) penalty to settle charges of accounting fraud brought by the Securities and Exchange Commission (SEC).
The US regulator said its investigation found Luckin had defrauded investors by materially misstating the company’s revenue, expenses, and net operating loss in an effort to falsely appear to achieve rapid growth and increased profitability and to meet the company’s earnings estimates.
The SEC alleged that, from at least April 2019 to January 2020, Luckin intentionally fabricated more than $300m in retail sales by using related parties to create false sales transactions through three separate purchasing schemes.