New York: A unit of Byju's, once one of India's hottest tech startups, was put into bankruptcy in the US by a court-appointed agent who took over the shell company after it defaulted on $1.2 billion in debt.
Byju's Alpha Inc. doesn't have enough money to keep fighting with its parent company about the debt, according to court papers filed by the unit's Chief Executive Officer Timothy Pohl. The lenders required the company to file bankruptcy before they would continue funding Byju's Alpha, the Chapter 11 petition said.
The company plans to sue a small hedge fund in Florida it has accused of wrongfully helping Byju's parent hide more than $500 million in cash that should go to creditors, according to the filing.
Online-education pioneer Byju's and its creditors have been mired in a prolonged restructuring conflict after the firm breached covenants on a $1.2 billion loan. The company decided to miss an interest payment on the term loan, one of the largest by a startup globally.
"The situation is quite grim," said Amit Singhania, founder of Areete Law Offices in India, which is not involved in the proceedings. "Facing insolvency in multiple jurisdiction is like going worse from bad."
The filing marks a reversal for the firm's eponymous founder Byju Raveendran, whose ascent from tutor to the leader of a company once valued at $22 billion captivated investors. As business boomed during the pandemic, Byju's went on an acquisition spree to expand globally.
But demand for online tutoring dropped off as schools reopened. Board members have resigned and Raveendran has pledged his home as well as those owned by his family members to raise money for paying employees as the company battles a cash crunch. Byju's also selling new stock at a discount of more than 90 per cent from its previous funding round to raise capital.
On Thursday, Prosus NV, which owns about 9 per cent of the online tutor, joined a group of investors demanding a shareholders' meeting to replace the management and board of Byju's, whose official name is Think & Learn Pvt. In a response, Byju's said it is saddened by the request and that the investors have no right to vote on management or chief executive officer change under the company's shareholders' agreement.
The company said it will continue with a plan to raise $200 million via a rights issue and that it "is gladdened by the support received by a wide section of its shareholders."
Bankruptcy rules will allow lenders to loan Byju's Alpha money that can be used to continue fighting the parent company. Should Byju's Alpha ultimately win any money from its legal fights with the parent, the lenders could claim that cash. Complex court disputes in the US can cost tens of millions of dollars if they drag on for years.
The US insolvency case may also give the lenders a modest tactical advantage in its court fights by consolidating much of the litigation against the parent company in a single bankruptcy court in Wilmington, Delaware. The lenders could use the bankruptcy to launch a fraudulent transfer case against the parent company for allegedly moving more than $500 million away from Byju's Alpha. Such cases are routine in big, corporate bankruptcies in the US.
Byju's Alpha listed assets of at least $500 million and liabilities of at least $1 billion in its bankruptcy petition. A lawyer for the parent of Byju's Alpha didn't return an email requesting comment.
Lenders to Byju's won a court fight in Delaware late last year that allowed them to appoint a new director "- Pohl "- to the financing unit. Since then, the lenders and Byju's parent company have traded accusations in courts in Delaware and Florida, where the battle over the debt default has been carried out.
Last month, the lenders filed an insolvency petition in India.