Byju's lenders begin bankruptcy process in the US over $1.2 billion term loan, says 'We have made every effort possible'

Troubled edtech startup Byju's lenders have taken legal action in the US by filing petitions for involuntary Chapter 11 bankruptcy against three US-based guarantors linked to a $1.2 billion term loan.

The lenders said that the petition have been filed against Byju’s reading platform Epic! Creations Inc., Neuron Fuel Inc. (Tynker), and Tangible Play Inc. (Osmo).

Glas Trust Co. Llc, a US-based non-banking loan agency representing more than 85% of the lenders, has been appointed as an administrative agent for the loan.

What led to this legal action?

The lenders assert that Byju's began defaulting on its term loan shortly after receiving financing in 2021. Efforts to collaborate and resolve these defaults have been unsuccessful. According to the lenders, Byju’s management has shown no intention or ability to meet its obligations.

“Since Byju’s began to default on its term loan obligations shortly after we provided Byju’s Alpha with financing in 2021, we have made every effort possible to work productively and collaboratively to help Byju’s cure its multiple defaults," the lenders said.

The lenders also allege that Byju's founders diverted $533 million in loan proceeds, the whereabouts of which are currently unknown. 

“However, it is clear that Byju’s management has no intention or ability to honour its obligations. Indeed, Byju’s founders, who also serve as the three directors of the overall enterprise—Byju Raveendran, Riju Ravindran and Divya Gokulnath—unlawfully diverted $533 million in loan proceeds, the whereabouts of which are still unknown," they said.

Implications for Byju's

The legal actions by the lenders are significant as they not only highlight compliance issues but also force organizations to audit their finances regularly and provide transparent financial information to investors and lenders.

According to Saumya Brajmohan, a partner at Solomon & Co law firm, this move is likely to increase financial scrutiny on Byju's, which has already been struggling with financial mismanagement and compliance issues. Byju's has also been attempting to sell its businesses, such as Epic and Great Learning, to manage its debt.

What did Byju's say?

Byju's has maintained that no funds were siphoned off, claiming that the $533 million in question is held within a 100% non-US subsidiary of the company.

Despite these claims, the lenders have criticized Byju's leadership, stating that the mismanagement has significantly harmed the company's value, impacted employees and vendors, and led to customer dissatisfaction. The lenders hope that the court's oversight will help maximize the value of Byju's assets for all stakeholders.

US District Bankruptcy Court to oversee the proceedings

According to media reports, The US District Bankruptcy Court in Delaware will oversee the proceedings.

The lenders are pushing for strict financial oversight of the three subsidiaries and possibly the appointment of a trustee to manage their operations.

Meanwhile, Byju's is embroiled in additional legal disputes in India, where creditors are urging the National Company Law Tribunal to restrain Byju’s parent company from transferring or pledging its shares.