
BYJU’S Alpha Inc., a company linked to Indian educational technology giant BYJU’S, has declared bankruptcy in the United States. This decision comes after defaulting on a significant $1.2 billion loan.
CEO’s Statement: Lack of Funds and Legal Battle
Timothy Pohl, the CEO of BYJU’S Alpha, revealed in court documents that the company lacks the necessary funds to continue its legal dispute with its parent company over the debt. The lenders insisted on the bankruptcy filing before considering further financial support for BYJU’S Alpha.
Background: Loan Violation and Insolvency Case
The conflict between BYJU’S and its creditors began when the company violated terms on a massive $1.2 billion loan, one of the largest taken by a startup globally. Skipping an interest payment on the loan triggered the insolvency case in the United States. This move could provide lenders with a strategic advantage by consolidating litigation against the parent company in a single bankruptcy court in Delaware.
Allegations and Legal Action: Against a Florida Hedge Fund
BYJU’S Alpha plans to sue a small Florida hedge fund, accusing it of improperly assisting the parent company in concealing over $500 million in cash that should have been allocated to creditors. Lenders may 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 common in large corporate bankruptcies in the US.
Financial Challenges: Impact on BYJU’S
BYJU’S has faced financial challenges due to reduced demand for online tutoring as schools reopened after COVID-19 restrictions were lifted. Board members have resigned, and the founder, Byju Raveendran, has pledged homes to raise money for employee salaries. The company is selling new stock at a significant discount to raise capital.
Bankruptcy Strategies: Legal Conflict and Recovery
Bankruptcy rules allow lenders to provide funds to BYJU’S Alpha for its legal battles against the parent company. If BYJU’S Alpha gains money from this conflict, lenders can claim it as a recovery for their loans. In its bankruptcy petition, BYJU’S Alpha listed assets of over $500 million and liabilities exceeding $1 billion.