Byju's, the prominent edtech startup, may face a government probe as the Ministry of Corporate Affairs (MCA) has ordered an inspection into the company for alleged corporate governance lapses.
The action follows a series of recent events, including the resignation of Deloitte and three board members amidst a legal dispute with lenders and a decline in valuation. However, Byju's has denied receiving any information regarding the inspection.
Reports emerged earlier stating that three directors of Byju's had resigned from the company's board due to concerns about how the business was being conducted. The directors who stepped down were G V Ravishankar of Peak XV (formerly Sequoia Capital India), Vivian Wu of Chan Zuckerberg Initiative, and Russell Dreisenstock of Prosus.
Shareholder sources revealed that differences between the management and the board had been escalating over time, and there was no immediate trigger for the resignations.
In response to these reports, Byju's refuted the claims and stated that they were entirely speculative. The company firmly denied the resignations and dismissed them as baseless. Byju's clarified that if any such developments or changes occur, they will communicate them through official channels.
In addition to the board resignations, Byju's also faced the departure of Deloitte as its auditor. The company has appointed BDO MSKA associates as auditors to strengthen its governance.
Deloitte, in a letter addressed to the board members of Think & Learn, Byju's parent company, expressed concerns about the delay in financial statements and the lack of communication regarding the audit report modifications and the audit readiness of the financial statements and underlying books and records.
The recent wave of setbacks for Byju's includes a significant round of layoffs to cut costs amid ongoing struggles with lenders. The edtech giant terminated 1,000 employees in its latest round of layoffs, bringing the total number of job cuts to more than 2,500 since October 2022. Byju's aims to achieve profitability by the end of the previous fiscal year, FY23 (2022-23).
Moreover, Byju's filed a lawsuit in the New York Supreme Court challenging the acceleration of a $1.2 billion term loan. The lenders, who collectively own more than 85% of the loan, dismissed the suit as "meritless." Byju's also took action against one of its creditors, Redwood, by disqualifying it as a lender.
Byju's creditors had previously withdrawn from negotiations to restructure the $1.2 billion loan after accusing the company of concealing $500 million in raised funds. To repay the loan, Byju's has been seeking to raise $1 billion through structured debt and equity. The company secured $250 million in debt funding from US investment firm Davidson Kempner in May, but it is still awaiting the remaining $700 million, which is expected to come from equity sources.
The situation surrounding Byju's remains uncertain as the government probe looms and the company faces multiple challenges. Byju's spokesperson emphasized that the reports of an inspection were speculative, and the company maintains that it has not received any official correspondence from the MCA regarding the matter. The coming weeks will shed more light on the future of Byju's and its efforts to overcome these obstacles.