Byju’s, the embattled Indian education technology company, suffered another significant setback on September 23 when the Delaware Supreme Court upheld a ruling that declared the company in default on its $1.2 billion Term Loan B.
This decision hands control of Byju’s American subsidiary, Byju’s Alpha Inc., to its lenders, represented by Glas Trust LLC.
The ruling follows an earlier decision by the Delaware Court of Chancery, which found that Byju’s had failed to meet its financial obligations and allowed the lenders to enforce their rights by taking control of the subsidiary pledged as collateral.
Byju’s appeal to overturn the ruling was dismissed by the Delaware Supreme Court, marking another blow to the company, which has faced increasing financial and legal pressures in recent months.
A complex loan default case
The $1.2 billion loan was originally provided to Byju’s by a syndicate of 37 financial institutions.
Glas Trust LLC, acting on behalf of the lenders, was tasked with overseeing the enforcement of the loan agreement.
Under the terms of the agreement, the lenders were allowed to take control of the collateralized subsidiary if Byju’s defaulted on its obligations.
In March 2023, Glas Trust issued a notice of default after Byju’s failed to renegotiate the terms of the loan, triggering a legal dispute.
By August 2023, the Delaware Court of Chancery ruled in favour of the lenders, affirming that Byju’s was in breach of the loan agreement and allowing Glas Trust to seize control of Byju’s Alpha Inc. through written consent.
Byju’s sought to challenge this ruling in the Delaware Supreme Court, arguing that the case should be dismissed due to an ongoing lawsuit in a New York court.
The Supreme Court, however, rejected this argument, citing that Byju’s had missed its opportunity to raise the issue during the initial case proceedings.
Delaware Supreme Court ruling
In its September 23 ruling, the Delaware Supreme Court affirmed the decision of the lower court, emphasizing that Byju’s had ample opportunities to address its concerns earlier in the legal process but failed to do so.
The court ruled that new arguments cannot be introduced for the first time on appeal unless the interests of justice require it, which was not the case in this instance.
The court’s ruling highlighted the importance of judicial finality, stating,
We find it difficult to see how judicial economy and finality can square with requiring the parties to retry the case, merely because the Appellants failed to address an issue which they now claim is vital to this case.
With this ruling, the lenders, represented by Glas Trust, retain control of Byju’s Alpha Inc, marking a significant step in enforcing their claims against the edtech giant.
Lenders express satisfaction
The lenders, who have been locked in a legal battle with Byju’s for months, expressed satisfaction with the court’s decision.
In a statement, they noted that the ruling affirmed their rights under the loan agreement and held Byju’s accountable for its actions.
“We are pleased the Delaware Supreme Court affirmed what we’ve known: Byju’s knowingly breached the credit agreement and defaulted. Both Byju (co-founder Byju Raveendran) and Riju (Byju’s board member Riju Raveendran) acknowledged this when signing the amendments between October 2022 and January 2023. The ruling confirms our right to accelerate the loan and take control of Byju’s Alpha Inc,” the lenders stated.
The lenders also criticized Byju’s co-founder, Byju Raveendran, for misrepresenting the default and attempting to shift blame.
Byju has falsely portrayed the default and tried to shift blame instead of repaying what is owed, including explaining the missing $533 million. Today’s ruling confirms that our actions have been proper, and Byju’s statements are nothing but lies.
Byju’s financial woes deepen
This latest ruling comes as Byju’s faces increasing scrutiny over its financial management and loan obligations.
The company’s troubles began to escalate earlier this year when it failed to renegotiate the terms of its $1.2 billion loan, prompting the lenders to issue a default notice.
Since then, Byju’s has struggled to maintain investor confidence and avoid further legal complications.
Adding to its woes, Glas Trust was recently removed from the Committee of Creditors (CoC) in an ongoing insolvency case against Byju’s.
This decision was made by Insolvency Resolution Professional (IRP) Pankaj Srivastava, who determined that Glas Trust no longer met the requirement of representing at least 51 percent of the lenders.
Glas Trust is contesting this decision in the Indian Supreme Court.
Implications for Byju’s future
The Delaware Supreme Court’s ruling represents a significant challenge for Byju’s as it continues to grapple with financial instability and legal battles.
With control of its American subsidiary now firmly in the hands of its lenders, the company’s ability to recover and maintain its international presence may be severely hindered.
Byju’s, once hailed as one of India’s most successful startups, has seen its fortunes decline in recent years.
The company, which rose to prominence by offering online education services, has faced difficulties in scaling its business and managing its financial obligations amid changing market conditions.
As the legal disputes continue, Byju’s faces mounting pressure to find a resolution with its lenders and restore confidence among investors.
The company’s future remains uncertain, particularly as it deals with multiple lawsuits and financial challenges on both domestic and international fronts.
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