Embattled edtech giant, Byju’s, is facing a major legal challenge as its lenders have filed for insolvency proceedings against three of the company’s guarantors in the Delaware district bankruptcy court in the US. The lenders, a group of over 100 institutions that provided Byju’s Alpha (a subsidiary of Byju’s) with a $1.4 billion term loan, are alleging that these entities are not paying their debts.
The administrative agent for the $1.2 billion term loan, Glas Trust, a non-banking loan agency based in the US, has spearheaded this legal action. In a scathing statement, the lenders have accused Byju’s management of “unlawfully diverting $533 million in loan proceeds, the whereabouts of which are still unknown.” This missing money has been a point of contention between the lenders and Byju’s, with the company claiming that the funds are “currently in a 100% non-US subsidiary of the company.”
The lenders have also alleged that due to Byju’s “failed leadership and mismanagement,” significant harm has been done to the company’s businesses and the value of its assets. Once valued at a staggering $22 billion, Byju’s valuation has plummeted by a staggering 95% as investors have cut their stakes in several rounds.
The lenders have stated that their legal action against Byju’s guarantors, namely Epic! Creations Inc, Neuron Fuel Inc, and Tangible Play Inc, is aimed at providing “much-needed oversight” while a plan is developed to “maximize the value of these assets for the benefit of all stakeholders.”
NCLAT dismisses appeal filed by foreign investors
In a parallel development, the National Company Law Appellate Tribunal (NCLAT) in India has dismissed a petition filed by certain foreign investors of Byju’s. These investors had sought an order against the ongoing proceedings in the Bengaluru bench of the National Company Law Tribunal (NCLT).
The NCLAT bench made it clear that as an appellate court, they cannot intervene in matters that are “yet to mature” in the NCLT. The court also sternly rebuked the investors’ counsel, stating that they cannot “misuse the appellate jurisdiction” and that the investors had not even formally filed an application or affidavit regarding the alleged breach of the interim order by Byju’s.
Byju’s counsel defends the company’s position
Byju’s counsel, in turn, highlighted the investors’ “blatant disregard for due process” and the fact that they had not even filed a petition for contempt in the NCLT. The court also noted that the investors’ petition was incomplete and lacked essential records, warning them that “if you don’t come up with complete records, we can be your worst enemy”.
The battle continues: Byju’s fights to regain control
As the legal battle rages on, Byju’s is fighting to regain control of the situation. The company’s founders, Byju Raveendran, Riju Ravindran, and Divya Gokulnath, who also serve as the three directors of the overall enterprise, are appealing a decision by Delaware’s Chancery Court that approved the seizure of the $1.2 billion term loan unit, Byju’s Alpha, by the lenders.
The bigger picture: Implications for the Edtech sector
The ongoing saga surrounding Byju’s has far-reaching implications for the broader edtech industry. The company’s financial troubles and the legal battles it faces serve as a cautionary tale for other players in the sector, highlighting the importance of sound financial management, transparency, and accountability.
The Byju’s case also underscores the complexities and challenges associated with securing and managing large-scale financing in the edtech space. As the industry continues to evolve, companies will need to navigate these treacherous waters with utmost care, ensuring that their financial practices and governance structures are robust and aligned with the expectations of lenders and investors.
For Byju’s, the road ahead is fraught with uncertainty. The company’s reputation has taken a significant hit, and it will need to work tirelessly to rebuild trust and credibility with its stakeholders, including lenders, investors, employees, and customers. The outcome of the ongoing legal battles will undoubtedly shape the future trajectory of the company and its impact on the broader edtech landscape. It will be crucial for companies, regulators, and industry bodies to closely monitor the developments and draw valuable lessons to strengthen the overall ecosystem.
