US lenders of Byju’s approached the court to put more subsidiaries into bankruptcy. Creditors led by HPS Investment Partners filed involuntary Chapter 11 cases in Delaware against Neuron Fuel Inc., Epic! Creations Inc., and Tangible Play Inc. on June 6.
In a significant setback for the edtech startup Byju’s, a group of US lenders approached the court to enforce bankruptcy oversight on several of the company’s subsidiaries. The lenders allege that millions of dollars are being misappropriated from these entities, according to a report.
Creditors, spearheaded by HPS Investment Partners, filed involuntary Chapter 11 bankruptcy petitions in Delaware on June 6 against Neuron Fuel Inc., Epic! Creations Inc., and Tangible Play Inc.
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These subsidiaries previously associated with Byju’s Alpha, a division of the company that entered bankruptcy earlier this year after defaulting on a Rs1.2 billion loan.
The lenders have accused Byju Raveendran, the founder of Byju’s, of breaching their debt agreements by withholding financial information about the three subsidiaries facing bankruptcy. The lenders argue that these units should have their spending restricted immediately, and a trustee may eventually need to be appointed to manage them, according to court documents. Byju’s intends to contest the case.
Referring to a lawsuit questioning if the Rs. 1.2 billion loan is in default, a company spokesperson stated in an email,
“The lenders claim to be creditors of these entities, notwithstanding that the question of whether the underlying loan amount is due and payable remains to be decided,”
In May, Byju’s US-based lenders appealed to the National Company Law Tribunal (NCLT) to prevent the company from pledging, selling, or transferring its shares.
The lenders have filed the insolvency petition through US-based non-bank loan agency Glas Trust Company LLC. They informed the tribunal on Wednesday that Byju’s taking on additional loans and offering its shares as collateral, thus “causing grave prejudice to them.”
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Over 100 lenders extended loans to Byju’s US entity, Byju’s Alpha Inc., which currently undergoing voluntary bankruptcy proceedings in a Delaware court.
In the last week of May, Byju’s assured its employees that salaries and statutory dues would be paid based on cash flow availability. The CTO conveyed the commitments from the town hall meeting with founder Byju Raveendran, including the promise to pay February and March salaries by June 30, with a worst-case scenario of July 8. Employees reassured in a professional manner.
Ravindran, the brother of Byju’s founder and CEO Byju Raveendran, criticized by Judge John Dorsey of the US Bankruptcy Court for the District of Delaware. The judge stated that Ravindran’s testimony “lacks all credibility” and subsequently held him in contempt for failing to disclose or determine the whereabouts of Rs. 533 million from the term loan proceeds. This amount is part of the Rs.1.2 billion loan managed by Byju’s US subsidiary, Byju’s Alpha.