Starbucks’ big challenger in China files for bankruptcy

The coffee chain that was supposed to give Starbucks Corp. a run for its money in China has filed for bankruptcy protection.

Luckin Coffee Inc. filed for Chapter 15 bankruptcy in New York, less than a year after the embattled company revealed that more than a quarter’s worth of its business may have been faked. In June, the Beijing-based company was delisted from Nasdaq after only a year of trading on the exchange.  And in December, Luckin was fined $180 million by the U.S. Securities and Exchange Commission which found that company intentionally fabricated more than $300 million in sales from April 2019 through January 2020

The Chapter 15 filing, which allows a foreign company to file for bankruptcy in the U.S. court system, is designed is designed to protect Luckin from lawsuits by U.S. creditors, including bondholders owed $460 million and shareholders. Luckin said the filing will help it financially restructure itself and strengthen its balance sheet.  

“The company continues to meet its trade obligations in the ordinary course of business, including paying suppliers, vendors and employees,” Luckin said in a statement. 

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, reported Bloomberg. The proceeding is already underway and is focused on negotiating a settlement with shareholders and bondholders, according to court documents. The company’s approximate 4,790 retail outlets will remain open.

The majority of Luckin’s retail locations are small, and function mostly as a place to pick-up mobile orders. The chain also offers delivery within 30 minutes, with such perks as a refund for delays.