Chinese rival to Starbucks coffee chain files for Chapter 15 bankruptcy in NY

Hong Kong

EMBATTLED Chinese coffee chain Luckin Coffee 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 will protect the company from lawsuits by United States creditors while it reorganises in China, where it runs several thousand outlets.

All its coffee shops will remain open for business and the Chapter 15 petition will not materially impact the company's day-to-day operations, it said 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.

The bankruptcy filing caps a saga in which the coffee chain - once thought of as a challenger to Starbucks's dominance in China - fired its chairman and chief executive officer, paid hundreds of millions in fines to both Chinese and US regulators, and saw its stock plunge 90 per cent before being delisted by Nasdaq.

The US Securities and Exchange Commission (SEC) fined the company US$180 million in December after finding that it intentionally fabricated more than US$300 million in sales from April 2019 to 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.

The chain's collapse has led to renewed scrutiny of Chinese companies that sell shares on US 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 US 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 per cent in the quarter ended Sept 30, 2020 compared to a year ago, said 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." BLOOMBERG