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Byju’s Loses One Of Its Units To Lenders After $1.2 Billion Loan Default

In Business
November 10, 2023

A Delaware judge found that the lenders to Byju’s, which was once among the most popular tech startups in India, had legitimately cited a $1.2 billion loan default when seizing control of a division of the education-technology provider.

Delaware Chancery Court Judge Morgan Zurn decided that the lenders, which include Redwood Investments LLC and Silver Point Capital LP, were within their contractual rights to appoint their nominee to the board of Byju’s Alpha, a special-purpose company established for financing purposes, in place of a relative of the company founder, Byju Raveendran.

Zurn denied Byju’s claim that Timothy Pohl, chosen by lenders to manage the special-purpose company, lacked the right authorization to assume control. The judge stated in a 41-page decision that Pohl was “effectively seated” as the only director of Byju’s Alpha as a result of the defaults.

When the company’s online learning boom of the pandemic era fizzled out, lenders have been pressing hard for the $1.2 billion loan to be repaid. Government agents searched Byju’s offices this year while the company worked to sell assets and resolve the loan issue. Some investors have also sold their shares in one of the biggest ed-tech companies in the world as a result of the lender dispute.

Earlier this year, an attorney representing the lenders stated that Byju’s Alpha was meant to act as a holding company to safeguard their interests in the lawsuit. In a May court hearing, Brock Czeschin, an attorney representing Red Tree and Silver Lake, stated that the lenders had no intention of taking over the entire ed-tech business.

Based in Bengaluru, India A request for comment from Byju’s was not immediately answered. The closely held business claimed that the lenders’ default defenses were untrue.

An official for the lender group said in a statement, “We are happy the Delaware Chancery Court agrees that Byju’s has repeatedly defaulted on its loan obligations.” “The lenders reserve all rights available to them.”

According to Zurn’s Nov. 2 ruling, the loan terms permitted lenders to seize pledged Bjyu’s Alpha shares in the event of a default. A transcript of the judge’s decision-making process states that in March, the lenders filed a notice of default after a company unit was unable to secure the support of the Indian government as a loan guarantor.

Upon being appointed as the sole director of Byju’s Alpha, Pohl dismissed all of the company’s officers and assumed the role of CEO, as per the transcript. Glas Trust Co., the lenders’ trustee, filed the lawsuit regarding the loan. In order to manage Byju’s Alpha on behalf of the creditors, the trust turned to Pohl.

Byju’s expressed dissatisfaction over the ex-attorney’s exorbitant fees, claiming that he should have received at least $375,000 for his position as the firm’s top leader. Zurn disagreed, stating that Pohl’s salary of $75,000 per month was permitted by a “status-quo” order she obtained in the case to safeguard Byju’s Alpha.

Delaware Chancery Court (Wilmington) case number 2023-0488 is Glas Trust Company v. Ravindran.