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Food

China’s Luckin Coffee Files for Bankruptcy Protection

February 5, 2021

The Chinese rival to Starbucks said Friday that it is negotiating with stakeholders regarding the restructuring of its financial obligations, to strengthen its balance sheet and to allow it to emerge as a going concern. The company filed for Chapter 15 bankruptcy protection, which allows a foreign company to file for bankruptcy in the U.S. court system.

Luckin said its stores will remain open during its restructuring.

The company made its  debut on the U.S. stock market in May 2019. It had opened its first store in Beijing less than two years before that. 

Most of Luckin's stores are small, have few seats and are used mainly as a place to pick up mobile orders. It also offers delivery in 30 minutes and promises a refund for delays or spilled drinks. Through its app, customers can watch their coffee being made after making an order.

In December the Securities and Exchange Commission announced that Luckin agreed to pay a $180 million penalty to settle accounting fraud charges. The SEC charged the company with defrauding investors by misstating its revenue, expenses, and net operating loss to appear to have been more profitable and growing faster than it actually was, and to meet the company's earnings estimates.

Luckin fabricated more than $300 million in retail sales, the SEC at the time. It said the misconduct continued from April 2019 until January 2020. The SEC and Luckin said the company had not admitted to or denied the allegations but agreed to a settlement.

Luckin's shares traded on the Nasdaq until July. They now trade on the OTC Pink board, or Pink Open Market, the most speculative tier for trading of over-the-counter stocks.

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