Byju’s Alpha Faces Allegations of Concealing $500 Million in Default Lawsuit
- ByStartupStory | May 19, 2023
All debt payments are up to date, and any potential defaults should be viewed as technical violations of the loan agreement. Byju’s Alpha, a prominent Indian tech company, has faced allegations from lenders regarding the concealment of $500 million, sparking a dispute between creditors and the self-proclaimed largest global education technology firm.
During a court hearing in Delaware on Thursday, an allegation surfaced regarding the control of Byju’s Alpha, leading to a lawsuit. Lenders argue that due to a previous default, they possess the right to appoint their representative, Timothy R. Pohl, as the company’s controller.
This dispute adds to the challenges faced by the successful startup founded by Byju Raveendran. Byju’s had already been engaging with creditors seeking to restructure a $1.2 billion term loan when government investigators conducted a search of the company’s offices in April. The Bengaluru-based firm has been making efforts towards an initial public offering (IPO) of its tutoring unit over the past few years.
Earlier this year, as the two sides were in a standoff, a top manager at Byju’s Alpha “admitted to transferring half a billion dollars out of the company,” Brock Czeschin, one of Pohl’s lawyers, said during the hearing, which was held by telephone.
According to Joe Cicero, the lawyer representing Byju’s Alpha, the company’s intention was to safeguard the funds from predatory lenders. During the court hearing, he stated that “transferring the money was within the company’s rights as per the loan agreement”. Byju’s Alpha attorney, Sheron Korpus, emphasized in an interview that “the company is up to date on all debt payments and any potential defaults should be regarded as technical violations of the loan agreement”.
In the legal proceedings at the Delaware Chancery Court, Judge Morgan Zurn refrained from making a decision on the appropriateness of the fund transfer. However, the judge did rule in favor of the lenders by issuing an order to prevent any significant changes at Byju’s Alpha until the matter is resolved. A trial has been scheduled for later this year to determine the control of Byju’s Alpha.
Glas Trust Company initiated the lawsuit against Byju’s Alpha, its director Riju Ravindran, and Tangible Play Inc. These two entities are subsidiaries of Think and Learn Private, the edtech conglomerate established by Byju Raveendran. According to a regulatory filing, Ravindran also serves as a director at Think and Learn.
During the court hearing, it was argued by Czeschin that Byju’s Alpha is merely a holding company that lenders seek to control in order to safeguard their rights. He clarified that the lenders’ objective is not to take over the entire edtech company.
Byju’s Alpha contended during the hearing that the lenders are distressed debt investors who are improperly attempting to profit from the company’s debt. Furthermore, it was mentioned in court that Byju’s Alpha is expected to receive a substantial capital infusion within approximately two weeks, enabling the company to repay the $1.2 billion owed to creditors.
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