Embattled Chinese coffee chain Luckin Coffee Inc. filed for Chapter 15 bankruptcy in New York, less than a year after the company said that more than a quarter’s worth of business may have been faked.
The move is designed to protect the company from lawsuits by U.S. creditors, including bondholders owed $460 million and shareholders. Luckin’s coffee shops in China will remain open and operations won’t be affected by the filing, according to a statement issued on Friday.
“The company continues to meet its trade obligations in the ordinary course of business, including paying suppliers, vendors and employees,” the statement said.
In U.S. court documents, Luckin asked a federal judge in Manhattan to allow it to restructure its finances through a court case filed in the Cayman Islands, where the company is incorporated. That proceeding is already underway and is focused on negotiating a settlement with shareholders and bondholders, according to court documents.
The bankruptcy filing caps a saga in which the coffee chain, once thought of as a challenger to Starbucks Corp.’s dominance in China, fired its chairman and chief executive officer, paid hundreds of millions out in fines to both Chinese and U.S. regulators, and saw its stock plunge 90% before being delisted by Nasdaq.
The U.S. Securities and Exchange Commission fined the company $180 million in December after finding that it intentionally fabricated more than $300 million in sales from April 2019 through January 2020. The company has never officially admitted or denied the SEC’s allegations.
Luckin’s alleged malfeasance, which involved misstating its revenue, expenses and operating loss, was all done to give investors the false impression that the company was experiencing miraculous growth, the SEC said.
Last year, the company hired law firm Kirkland & Ellis and restructuring adviser FTI Consulting Inc. to investigate the claims. Based on their findings, the company fired its chief executive and chief operating officer, according to the U.S. court filing.
The chain’s collapse has led to renewed scrutiny of Chinese companies that sell shares on U.S. exchanges without adhering to rules that require their audits be inspected by American regulators. The fallout also triggered fresh concerns for global investors about China’s corporate governance, while contributing to the U.S. Congress passing legislation late last year that could lead to Chinese businesses being kicked out of American markets.
Founded in 2017, Luckin operated 3,898 outlets as of Nov. 30 with another 894 “partnership” stores. The chain pulled in customers by offering massive discounts and sought to reach 10,000 locations by the end of 2021.
Its coffee — cheaper than Starbucks and sold from takeaway kiosks close to urban professionals — continues to be popular in China. Sales grew 35.8% in the quarter ended Sept. 30 compared to a year ago, according to a document posted on its website.
“This filing does not mean Luckin will close down,” said Jason Yu, managing director at Kantar Worldpanel Greater China. “It can use the filing to abandon debt, close some unprofitable operations and focus on its core business.”
The case is Luckin Coffee Inc., 21-10228, U.S. Bankruptcy Court, Southern District of New York, Manhattan.