What does the Hougu Coffee ruling mean for the china coffee industry?

The Intermediate People's Court of Dehong Prefecture, Yunnan Province, ruled on November 23, 2024 to approve the restructuring plan for Dehong Hougu Coffee Co., Ltd. and 24 other enterprises. Hougu once supplied instant coffee ingredients to Nestlé and Maxwell House and held more than 60 percent of the market, so the ruling gives the debt-laden company a path out of bankruptcy.

Hougu's decline began around 2018, when reports of capital turnover problems were followed by bank lawsuits over debt defaults, moving a business with billions of yuan in annual revenue into restructuring accepted by the court in December 2022. For the china coffee industry, the approved plan restarts a process stalled by two rejected drafts and tests whether a major local supplier can recover.

Hougou Coffee, which once supplied instant coffee ingredients to international brands such as Nestlé and Maxwell House, has finally seen a turnaround after weathering financial difficulties, tens of billions in debt, and a restructuring draft that was twice rejected. The Intermediate People's Court of Dehong Prefecture, Yunnan Province, recently ruled to approve the "Restructuring Plan (Draft) for Dehong Hougou Coffee Co., Ltd. and 24 Other Enterprises," meaning this local coffee giant—which once held more than 60% of the industry's market share—may finally emerge from the shadow of bankruptcy. This article traces Hougou Coffee's full journey from glory to decline and now to restructuring approval, and examines where it may go next.

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According to a recent report by Yunnan Information Daily, Hougou Coffee, once a leading enterprise in China's coffee industry, has achieved a substantive breakthrough in its bankruptcy restructuring case.

According to the "Civil Ruling (2022) Yun 31 Po No. 2-4" issued by the Intermediate People's Court of Dehong Dai and Jingpo Autonomous Prefecture, Yunnan Province, the court has ruled to approve the "Restructuring Plan (Draft) for Dehong Hougou Coffee Co., Ltd. and 24 Other Enterprises," effective from the date of the ruling, dated November 23, 2024.

The issuance of this ruling means that after nearly two years of twists and turns, Hougou Coffee Co., Ltd.'s bankruptcy restructuring process is about to restart, and this once-largest local coffee brand seems to see the dawn of revival.

Looking back, Hougou Coffee once supplied instant coffee ingredients to globally renowned brands such as Nestlé and Maxwell House, with products then entering the market under these brands' labels. This single business alone captured more than 60% of the market share, once placing it among the industry giants.

However, starting in 2018, Hougou Coffee was first reported to be facing difficulties in capital turnover, and was subsequently sued in court by banks over debt defaults, step by step moving from a local coffee brand with annual revenue of several billion yuan onto the path of bankruptcy restructuring.

On December 22, 2022, the Dehong Intermediate Court issued the "Civil Ruling" (2022) Yun 31 Po No. 2, ruling to accept the restructuring of Dehong Hougou Coffee Co., Ltd. According to investigations, Hougou Coffee's total liabilities amounted to 11.5 billion yuan, and the number of creditor representatives eligible to vote on the restructuring plan was 637.

In July of this year, the administrator of Hougou Coffee issued an announcement stating that, in accordance with the "Enterprise Bankruptcy Law of the People's Republic of China" and relevant legal provisions, Hougou Coffee held a vote on the "Restructuring Plan (Draft) for Dehong Hougou Coffee Co., Ltd. and 24 Other Enterprises." The voting groups were set up as eight categories including the tax creditor group, construction project creditor group, and social insurance creditor group. Ultimately, because the financial institution group and the secured creditor group did not agree to the restructuring plan, Hougou Coffee's restructuring draft failed to pass after the vote.

Thereafter, the administrator conducted multiple rounds of communication and negotiation with creditors who voted against in the two groups that did not pass, and on November 13, 2024, again submitted the adjusted "Restructuring Plan (Draft)" to relevant creditors in the financial institution group and the secured creditor group for a vote, but it still failed to pass.

Therefore, on November 18, the administrator of Dehong Hougou Coffee Co., Ltd. filed an application with the Dehong Intermediate Court, requesting the court to rule to approve the "Restructuring Plan (Draft) for Dehong Hougou Coffee Co., Ltd. and 24 Other Enterprises."

The Dehong Intermediate Court held that the "Restructuring Plan (Draft)" submitted by the administrator for court approval complies with the provisions of Article 87, Paragraph 2 of the "Enterprise Bankruptcy Law of the People's Republic of China" and meets the conditions for approval. In accordance with Article 87, Paragraphs 2 and 3 of the "Enterprise Bankruptcy Law of the People's Republic of China," the court ruled to approve the "Restructuring Plan (Draft)" and terminate the restructuring procedures of 25 enterprises including Dehong Hougou Co., Ltd. and Dehong Prefecture Hongtian Industrial (Group) Co., Ltd.

The "Restructuring Plan (Draft)," which had been repeatedly shelved and led public opinion to believe the restructuring process had reached a dead end, has now been approved by a ruling of the Dehong Intermediate Court—undoubtedly good news for Hougou Coffee. However, regarding the details of the "Restructuring Plan (Draft)" and how the next steps will be advanced, after a reporter called the lawyer contact number left by the administrator to request an interview, the other party replied that they are currently not accepting interviews.

Image source: Internet

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