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Creditors Allege Byju’s Alpha Hid Around $500 Million: Report

Byju’s Alpha is facing a lawsuit in Delaware court about the company's control, after lenders claimed that it had defaulted on its payments

Creditors Allege Byju’s Alpha Hid Around $500 Million: Report
POSTED ON May 19, 2023 3:50 PM

Edtech Byju’s Alpha has been accused of hiding $500 million from its lenders in a court hearing in Delaware on Thursday. According to a report by Bloomberg, Byju's Alpha, the holding company for India's most valued start-up, Riju Raveendran, the younger brother of Byju's founder Byju Raveendran and Tangible Play Inc are facing a lawsuit from the Glas Trust Company regarding the company’s control.

The lenders accused the company of defaulting on their payments earlier this year and sought that their representative, Timothy R Pohl, be put in charge. 

According to the report, the creditors and the edtech have been legally eyeballing each other since earlier this year. Brock Czeschin, one of Pohl’s lawyers, claimed that a top manager at Byju’s Alpha admitted to transferring half a billion dollars out of the company. Responding to this, Joe Cicero, a lawyer for Byju's Alpha, said that it was trying to protect the money from predatory lenders and added that the company had the right to transfer the money under the loan contract. 

During the hearing, Czeschin maintained that Byju’s Alpha is just a holding company that the lenders need to control to protect their rights within trying to take over the entire edtech.

Morgan Zurn, the judge in the Delaware Chancery Court, did not make any judgment about the suitability of moving the money outside the company. However, he ordered the managers not to make any substantive changes in the organisation. He also scheduled a trial to decide who will have control of the company in the coming months this year. 

However, Byju’s issued a statement claiming that this is an interim order of a Delaware Court to maintain the status quo in relation to Byju’s Alpha, a non-operative US entity set up to receive Term Loan B, with no employees. It added that the litigants have made bewildering claims that it had “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 the 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,” the company said in a statement. 

It further added that it had fulfilled all its contractual payment obligations as agreed upon in Term Loan B signed in 2021 and has not missed a single payment thereunder or monetary defaults under the loan.  “The lenders' allegations (which also we dispute) concern merely insignificant technical and non-monetary defaults,” it noted.

This dispute is the latest in a string of issues that the Byju Raveendran-led edtech has been battling for the past few months. It was earlier trying to assuage creditors to restructure a $1.2 billion term loan. 

The start-up was also in the news for multiple rounds of layoffs and debatable accounting practices, which were flagged its own financial auditor. Later, it came under scrutiny from the Ministry of Corporate Affairs after it delayed announcing its FY21 financials by almost 18 months.

When the company finally released its FY21 financial statements, it reported a loss of Rs 4,564 crore, with revenues falling by 3.3 per cent to Rs 2,428 crore. This was after it deferred about 40 per cent of its revenue to subsequent years due to its new revenue recognition model.

This article has been updated to include Byju's official response.

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