The troubles of edtech major Byju’s are just piling on. More than a week after insolvency proceedings were revived against the edtech major, the company received a major blow as the Delaware Supreme Court determined that Byju’s had indeed failed to repay a loan of $1.5Bn, thus defaulting on it. The original debt was due to be repaid in two years time, by November 2026.
With the new ruling – delivered this week – lenders can initiate actions to recoup their losses, such as taking control of the assets of the edtech behemoth – once a much celebrated poster boy in India’s startup scene – in the US. According to reports, the court has appointed Timothy Pohl as the sole director of Byju Alpha, Byju’s US entity, to facilitate these actions, in a development that marks a turn in the company’s governance amid escalating financial difficulties. Lenders have indicated that the total claims against Byju’s in ongoing insolvency proceedings in India have escalated to $1.5 billion, up from $1.35 billion.
From the looks of it, the current legal troubles stem from a Term Loan B (TLB) that Byju’s secured through its holding company, Byju Alpha, which is backed by institutional investors. This loan has been at the center of a dispute as Byju’s struggled to fulfill its repayment obligations. Earlier, in August, the Delaware Court of Chancery sided with GLAS Trust, the administrative agent for the lenders, confirming that Byju’s had failed to comply with the terms of the loan agreement. This previous ruling laid the groundwork for the Supreme Court’s decision, reinforcing the lenders’ claims of default and their rights to pursue remedies. GLAS Trust has also sued Byju’s for the recovery of the TLB loan in India and the US earlier this month.
“We are gratified the Delaware Supreme Court decisively affirmed what we have known all along: Byju’s breached and defaulted on the credit agreement it knowingly and willingly entered into. Most notably, this ruling confirms that Byju’s was in default, which both Byju and Riju personally acknowledged when they signed multiple amendments to the credit agreement on Byju’s behalf from October 2022 to January 2023. As such, and as validated by the Delaware Supreme Court, the lenders were well within their contractual rights to accelerate the term loan and take control of Byju’s Alpha Inc,” the lenders commented in a statement on the matter.
In response to the Supreme Court’s ruling, Byju’s insists that the judgment has “no bearing on the ongoing legal proceedings in India.” “The recent ruling by the Delaware court does not influence ongoing legal matters in India. The Delaware Supreme Court merely upheld a limited decision regarding the appointment of a nominee as director of BYJU’S Alpha Inc., a shell company,” the company said. The firm itself has seen better days – it was once regarded as the most valuable startup in India, with a valuation soaring to $22 billion two years ago while riding the high of the pandemic and lockdown-enforced shift to online education. Since then, it has seen its worth plummet by 95% in recent years, raising concerns about its long-term viability. The company claims that the Delaware Supreme Court’s decision is limited to its US operations and does not impact its legal standing in India, where it continues to face mounting scrutiny.
Byju’s has also criticized the lenders’ attempts to craft a narrative that deflects responsibility away from the company. They argue that they have made substantial payments — approximately $140 million in interest — on the loan before the lenders attempted to accelerate the payment schedule without proper court approval. Byju’s maintains that the Delaware ruling does not affect its rights to challenge the validity of lender disqualification or the acceleration of the loan, revealing that the New York Supreme Court holds jurisdiction over these matters.
