Luckin Coffee Inc. (OTC: LKNCY) announced today that it has entered into a binding term sheet to settle its US securities class action lawsuit with the lead plaintiffs. The coffeehouse chain also filed a petition and summons for directions in the Grand Court of the Cayman Islands seeking to convene a meeting with its creditors related to the mandated restructuring of its outstanding senior notes.
These recent actions are still related to the ongoing liquidation of the company after it had filed Chapter 15 bankruptcy in February 2021. The Chinese coffee company reportedly misrepresented its financials in 2019, inflating its revenue by approximately US$310 million. In December 2020, the company settled the accounting fraud case with US Securities and Exchange Commission for US$180 million without admitting or denying the allegations.
The settlement of the provisionally certified class action is connected to resolving current and future claims of holders of the company’s American depository shares holders between May 17, 2019 and July 15, 2020. The binding term sheet documents and seeks approval from the Cayman court, which oversees the liquidation, and the US court handling the US class action that the settlement amount will be based on the global settlement amount of US$187.5 million. This will be reduced on a pro-rata basis based on the valid opt-out notices that will be reported by the US court on October 8, 2021.
“Upon final approval, this settlement will resolve a significant contingent liability and enable Luckin Coffee to move forward with a greater focus on our operations and the execution of our strategic plan,” said Luckin Coffee Chairman and CEO Dr. Jinyi Guo, who took the helm in July 2020 after the former company chief Charles Zhengyao Lu was removed by the shareholders.
On the same day, the company also launched an arrangement scheme to restructure its outstanding US$460 million 0.75% convertible senior notes due 2025. Per its filed petition with the Cayman court, the company seeks to convene a single meeting with the creditors to approve the scheme envisaged by the restructuring support agreement. The approval is necessary under Cayman law since the aggregate principal amount of the existing notes held by creditors party to the agreement is above the 75% voting threshold required to approve an arrangement scheme.
The Cayman court is expected to confirm the date of the hearing to adjudicate the sought convening order with the company’s creditors. Dr. Guo added, “With this announcement, we are taking another important step in our restructuring process.”
While the coffeehouse chain still operates its Chinese locations, the company has been delisted from the Nasdaq Stock Market since June 2020.
Luckin Coffee last traded at US$14.55 on the OTC.
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