Default Case against Byju's; US Court Validates Lenders' Claim

In a setback for Byju’s, India”s largest Edutech startup, Delaware Chancery Court Judge Morgan Zurn validated the rights of lenders, including Redwood Investments LLC and Silver Point Capital LP, to take over Byju”s Alpha, a unit of Byju”s, on the grounds that Byju”s has defaulted on a $1.2 billion loan. The court rejected Byju”s challenges to the takeover. In the order, the U.S. court also approved the appointment of Timothy Pohl, a representative of the lenders, as the sole director of Byju”s Alpha.

The verdict came in a lawsuit filed by Glas Trust Co., which manages lenders” assets.

The court ruled in favor of the lenders, confirming their right to replace a relative of company founder Byju Raveendran on the board of Byju”s Alpha, a special-purpose company formed for financing purposes, with their nominee. Byju”s argued that Timothy Pohl was only appointed to supervise Byju”s Alpha and was not meant to take control of the company.

Byju”s Alpha was constituted as a holding company, which has control over other assets of Byju”s, in order to help lenders redeem the loan amount in case Byju”s defaulted. As Byju”s defaulted on the $1.2 billion loan, lenders began taking over Byju”s Alpha, despite Byju”s challenges. However, lenders claim that they have not entirely taken over the company.

“We are pleased the Delaware Chancery Court agrees that Byju”s has repeatedly defaulted on its loan obligations,” a spokesperson for the lender group said in a statement. “The lenders reserve all rights available to them.”

Byju”s has not yet responded. When Pohl assumed office, he fired all of the Byju”s officers. In retaliation, Byju”s has accused Pohl of making inappropriate money. However, the judge rejected this claim.

Cash-strapped Byju’s, once a symbol of India’s growing startup ecosystem, is currently grappling with a number of problems.

The authorities had previously scrutinized Byju’s financial documents, as the company had failed to disclose its financial results for many years. In an attempt to capitalize on the pre-pandemic boom, the company had made a number of acquisitions around the world, including in India, but these moves only exacerbated its struggles.

One of Byju’s main investors, Prosus NV, sold its stake in the company, which caused the startup’s total valuation to fall to $5.1 billion. Last year, Byju’s raised funds at a valuation of $22 billion.