Troubled Byju’s faces insolvency proceedings amidst charges of default, lack of engagement

In a noteworthy turn of events, BYJU’s, the edtech powerhouse once valued at $22 billion during the Covid pandemic, now finds itself entangled in insolvency proceedings. This drastic move has been set in motion by a consortium of lenders, prompted by BYJU’s defaulting on a substantial $1.2 billion loan in November 2022, exacerbated by what the lenders characterise as a "persistent lack of engagement".

Background: BYJU’s, which soared to prominence during the peak of online learning demand amid the pandemic, found itself in financial distress as the online education landscape shifted. The subsequent decline in cash flow and a decrease in valuation set the stage for the company's financial troubles.

Lenders’ perspective: The lenders, in a detailed statement, expressed frustration over what they consider a series of self-inflicted issues by BYJU’s. They claim to have made continuous efforts over 16 months to restructure term loans and reach a mutually agreeable resolution. However, they allege that BYJU’s management showed neither the intention nor the ability to honour its obligations under the term loans.

Alleged actions by BYJU’s: According to the lenders, BYJU’s engaged in actions that disregarded its loan obligations. These include refusing to make necessary loan payments and transferring a substantial $533 million in loan proceeds to an obscure hedge fund, raising concerns about transparency and accountability.

Additionally, BYJU’s is accused of significantly delaying financial reporting obligations. The approval of the financial year 2021-22 audit, due in September 2022, was only completed in December 2023, coinciding with the public filing of financial statements after the lenders initiated the corporate insolvency resolution process (CIRP).

CIRP is a mechanism for creditors to recover outstanding dues from a corporate debtor, and is a fundamental aspect of financial resolution. In this context, a corporate debtor pertains to a company or limited liability partnership (LLP) with outstanding debts to its creditors.

The Insolvency and Bankruptcy Code 2016 (IBC) outlines the legal framework governing this process. The IBC provides a comprehensive set of provisions for initiating and conducting insolvency or bankruptcy proceedings, encompassing individuals, partnership firms, LLPs, and companies.

Legal standpoint: In a previous ruling in November 2023, the Delaware Chancery Court affirmed that the lenders were within their contractual rights to replace the sole director of BYJU’s Alpha, a subsidiary established in the U.S. in 2021 to receive term loan proceeds.

Hope for resolution: The lenders express hope that the insolvency proceedings in India’s National Company Law Tribunal will not only address BYJU’s financial instability but also result in a resolution plan that takes into account the interests of all stakeholders involved.

As of now, BYJU’s has not issued a statement in response to the lenders' actions, leaving the future of the edtech giant uncertain amidst the ongoing financial turmoil.