Defaulting on $1.2B loan, BYJU'S US unit files for bankruptcy
BYJU'S Alpha Inc., a subsidiary of Indian edtech giant BYJU'S, has filed for bankruptcy protection in the US after defaulting on $1.2 billion loan. Alpha's CEO Timothy Pohl stated in court documents that the company lacks the funds to continue battling its parent firm over the debt. The lenders demanded the company file for bankruptcy before agreeing to provide further funding to BYJU'S Alpha.
BYJU'S defaulted one of largest loans availed by any start-up
The ongoing restructuring dispute between BYJU'S and its creditors began after the company violated terms on a $1.2 billion loan, one of the largest loans taken by a start-up worldwide. BYJU'S chose to skip an interest payment on the loan, leading to the US insolvency case. This case may grant lenders a strategic advantage by consolidating much of the litigation against the parent company in a single bankruptcy court in Wilmington, Delaware.
Accusations and plans for legal action against BYJU'S
According to the filing, BYJU'S Alpha intends to sue a small Florida hedge fund, accusing it of improperly assisting BYJU'S, the parent company, in concealing over $500 million in cash that should be allocated to creditors. Lenders could use the bankruptcy to initiate a fraudulent transfer case against the parent company for allegedly moving more than $500 million away from BYJU'S Alpha. Such cases are quite common in large corporate bankruptcies in the US.
BYJU'S financial struggles and founder's pledge
BYJU'S has experienced financial difficulties as demand for online tutoring decreased with schools reopening after restrictions imposed to contain coronavirus outbreak were lifted. Board members have resigned, and founder Byju Raveendran has pledged his and his family members' homes to raise money for employee salaries during the cash crunch. The company is also selling new stock at a discount of over 90% from its previous funding round to raise capital.
How insolvency bid can help BYJU'S Alpha
Bankruptcy rules allow lenders to credit money to BYJU'S Alpha that can be utilised to continue fighting the parent company. If BYJU'S Alpha gets some money from its legal conflict with the parent company, the lenders can claim that amount as a recovery for their loans. In its bankruptcy petition, BYJU'S Alpha listed assets of over $500 million and liabilities exceeding $1 billion.
