Why lenders initiated insolvency proceedings against BYJU’s

A group of lenders have dragged troubled edtech firm BYJU’s to bankruptcy court, saying the company’s actions forced them to adopt the course of action.

BYJU’s, a once-storied startup valued at $22 billion during the pandemic, found itself in financial troubles after online learning receded and its cash flows dried up and valuation sunk.

“The myriad issues facing BYJU’s are entirely self-inflicted. For months, we sought to avoid this exact situation, repeatedly attempting to engage constructively with BYJU’s management and other stakeholders and providing them with multiple paths to reach a mutually agreeable resolution,” the group of lenders said in a statement.

“It is our belief now that BYJU’s management has no intention or ability of honoring its obligations under the Term Loans,” the lenders said, adding that they hope insolvency proceedings in India’s National Company Law Tribunal “will help stabilize Think & Learn (parent firm of BYJU’s) and result in implementing a resolution plan that accounts for the interests of all stakeholders.”

BYJU’s defaulted on a $1.2 billion loan obligation in November 2022, a charge upheld by a Delaware court which lenders had previously approached.

“This action was taken following over 16 months of good faith efforts on behalf of the Ad Hoc Group to restructure the term loans, which, if successful, would have immediately solved for the loan’s numerous outstanding defaults, acceleration, and ended all open litigation while avoiding further enforcement actions,” the lenders said.

In their statement, the lenders listed a number of actions allegedly taken by BYJU’s, which they said amounted to the company disregarding its loan obligations. These include:

Refusing to make any contractually required loan payments;

BYJU’s Alpha transferring $533 million in loan proceeds to an obscure, nascent hedge fund and then apparently transferring the ownership of the money to a still undisclosed entity. (the US subsidiary of BYJU’s established in 2021 to receive proceeds of the term loans). To date, the former director at BYJU’s Alpha (who was appointed by BYJU’s) and the management of BYJU’s continue to refuse to provide any specific information on the status of such funds to the lenders under the Term Loans or even the new director of BYJU’s Alpha.

Seeking to retain a substantial portion of the proceeds from the contemplated sale of Epic!, despite the lenders’ senior secured claims on Epic!’s assets and the clear requirements of the credit agreement;

Significantly delaying its financial reporting obligations, not approving the financial year (FY) 2021-22 audit, which was due in September 2022, until December 2023, and only made public filing of such financial statements after the lenders filed for the BYJU’s CIRP.

In November 2023, the Delaware Chancery Court had held that the lenders were within their contractual rights to replace the sole director of BYJU’s Alpha.

BYJU’s is yet to issue a statement in response to the latest action by its lenders. This article will be updated if the company issues a statement.