Byju’s Alpha accused of hiding $500 million from lenders

By Steven Church and Jef Feeley

Lenders accused one of India’s hottest tech companies, Byju’s Alpha, of hiding $500 million as part of a fight between creditors and the self-proclaimed biggest education technology company in the world.

The allegation came out at a court hearing on Thursday in Delaware, where Byju’s Alpha faces a lawsuit over who should control the company. Lenders claim that because of a default earlier this year, they have the right to put their representative, Timothy R Pohl, in charge.

The dispute is the latest setback for the high-flying startup founded by Byju Raveendran. Byju’s had already been working to appease creditors trying to restructure a $1.2 billion term loan when government investigators searched company offices in April. The Bengaluru-based company has been working toward an initial public offering of its tutoring unit for several years.

Also read | Byju's set to raise $1 billion amid funding winter

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.

Byju’s Alpha was trying to protect the money from predatory lenders, Joe Cicero, a lawyer for Byju’s Alpha, said during the hearing. The company had a right to transfer the money under the loan agreement, he said.

The company is current on all debt payments and any defaults should be considered technical breaches of the loan agreement, Byju’s Alpha attorney Sheron Korpus said in an interview. Meanwhile, Byju's has denied the allegations. Below is the statement issued by the company.

"This is an interim order of a Delaware Court to maintain status quo in relation to Byju's Alpha, a non-operative US entity set up to receive the Term Loan B, with no employees. The litigants have made bewildering claims that Byju's 'moved' $500 million from Byju's Alpha, insinuating that these acts were somehow wrongful.

This is entirely incorrect. We categorically deny these allegations. The transfers were in full compliance of and did not contravene any terms of the parties’ Credit Agreement and the agreed-upon rights and responsibilities. In fact, even lenders have not alleged that the transfer was not permitted under parties’ existing contractual arrangement.

As Byju's alpha is a non-operative entity, the funds were transferred to other operative entities for growth and expansion in its global operations. Byju's entered into the Term Loan B agreement with the clear intention of utilizing the raised funds to drive growth and expansion in its global operations and is free to transfer and use the funds as necessary.

Additionally, Byju's has fulfilled all its contractual payment obligations as agreed upon in the Term Loan B signed in 2021 and has not missed a single payment thereunder. There have been no monetary defaults under the loan. The lenders' allegations (which also we dispute) concern merely insignificant technical and non-monetary defaults.

The order does not have any bearing on any other subsidiary of Byju's anywhere in the world. Further, this is a temporary order and the Court has not made any final determination against Byju’s Alpha, including in relation to the transfer.

In the face of unrealistic and unacceptable terms being demanded by a collective of lenders engaged primarily in opportunistic trades, we remain steadfast in our pursuit of a fair and equitable resolution through good-faith negotiations. Our unwavering commitment to meeting all our financial obligations is demonstrated by our impeccable track record of consistently honouring timely payments.

The successful completion of a recent funding round of $250 million further reinforces our financial stability and serves as a testament to the unwavering confidence that investors have in our business. We will continue to assertively negotiate with our lenders to secure a resolution that not only ensures the long-term sustainability of our international operations but also aligns with our unwavering mission of providing quality education globally."

Future Trial

Delaware Chancery Court Judge Morgan Zurn did not make any ruling about whether moving the money was appropriate. Zurn did side with lenders by ordering Byju’s Alpha managers not to make any substantive changes at the company. The judge scheduled a trial to decide who controls Byju’s Alpha later this year.

The lawsuit was filed by Glas Trust Company against Byju’s Alpha, its director, Riju Ravindran, and Tangible Play Inc. The two companies being sued are units of Think and Learn Private, the edtech empire founded by Byju Raveendran. Ravindran is also a director of Think and Learn, according to a regulatory filing.

Byju’s Alpha is just a holding company that the lenders need to control in order to protect their rights, Czeschin said during the hearing. The lenders are not trying to take over the entire edtech company, he said.

The lenders are distressed debt investors who are wrongly trying to make a profit on the company’s debt, Byju’s Alpha claimed during the court hearing. The company will get “a large capital infusion” in about two weeks that will allow Byju’s Alpha to pay down the $1.2 billion it owes creditors, Cicero said in court.

The lenders “have engaged in a campaign to harm this business and they don’t want to run the company,” Cicero told Zurn.

The case is Glas Trust Company vs Riju Ravindran, 2023-0488, Delaware Chancery Court (Wilmington).