Luckin Shareholders Seek to Reverse Board Changes
Luckin Coffee opened a new chapter in an ongoing boardroom fight for control of the scandal-ridden company, scheduling an extraordinary shareholders meeting next month to discuss undoing board changes made in July that worked in the favor of ousted co-founder and former Chairman Charles Lu Zhengyao.
Two shareholders linked to Hong Kong-based Centurium Capital requested the meeting for reinstating Sean Shao as a director on Luckin’s board. The shareholders also proposed the removal of Zeng Ying and Yang Jie as independent directors, Luckin said Monday in a U.S. exchange filing. Zeng and Yang are linked to Lu.
The company, once seen as China’s challenger to Starbucks, has been rocked by internal volatility after its $300 million financial reporting fraud was brought to light in April, leading to its delisting from the Nasdaq stock exchange in July.
Centurium’s proposals would reverse a board shakeup decided in a July 5 shareholders meeting initiated by Lu. At that meeting, four of the company’s five remaining directors who pre-dated the scandal were all forced out, including Shao, the chairman of the special committee probing the company’s accounting scandal.
The purge also ousted Centurium founder David Li Hui as well as Lu himself. Separately, the board booted Lu as chairman at a meeting July 12, replacing him with co-founder and acting CEO Guo Jinyi.
However, the July reshuffle was seen as strengthening Lu’s control over the company as it gave him greater influence through new board members with whom he had links. Zeng and Yang were nominated by Haode Investment, Lu’s family trust.
Luckin said Monday it called an extraordinary general meeting Sept. 2 in Beijing to consider the requests. However, in a separate filing, the company said Zeng and Yang resigned from the board effective immediately, without giving details.
The changes will reduce Lu’s influence on Luckin’s board. If Shao returns after the September meeting, only three of the seven-member board would have ties to Lu. Previously, five of the eight directors supported Lu. Centurium, which holds 7.15% of Luckin’s shares and 43.5% of the voting power, didn’t reply to a Caixin question on whether it would seek further involvement in the company’s management.
Following the July shareholders meeting, Lu and affiliates’ controlling stakes in Luckin were reduced after courts ordered liquidation of part of the Luckin shares they pledged for loans.
The timing of the July 5 meeting and the subsequent liquidation process of Haode “caused concerns over the independence of the directors” nominated by Haode and elected at that time, Centurium said in the statement. The reinstatement of Shao will allow the board to fully implement the remedial measures recommended by a special investigation committee, it said.
A person close to Luckin said such measures are expected to include punishment of employees involved in the financial reporting fraud and cutting Luckin’s links with connected parties in the scandal.
Luckin has been in a state of turmoil ever since the company’s surprise admission in early April that it reported more than $300 million in fake sales, or nearly half of its total revenue for the final three quarters of last year. Two independent directors have since resigned, and the company also forced CEO Jenny Zhiya Qian and COO Jian Liu to resign from the board after determining they were involved in or had knowledge of the fraud.
Lu is also likely to face criminal charges in China after authorities discovered emails in which he instructed colleagues to commit fraud, Caixin previously learned from a source close to domestic regulators.
The Ministry of Finance and the State Administration for Market Regulation recently concluded a separate three-month investigation into Luckin, its affiliates and 23 financial institutions involved in the financial fraud. The regulators said they are taking steps to impose penalties.
Luckin has been placed in provisional liquidation to restructure its debt position, Centurium said, adding that the directors retain certain powers and work with the provisional liquidators in facilitating a plan or compromise with creditors.
Contact reporter Han Wei (firstname.lastname@example.org) and editor Bob Simison (email@example.com)
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