BackByju’s US arm files for bankruptcy in latest blow to troubled tutor
Alpha, which some creditors allege helped Byju’s hide more than $500 million in cash, filed for insolvency after it defaulted on debt of $1.2 billion
PremiumNEW DELHI:The American arm of Byju’s has filed for bankruptcy after defaulting on debt of $1.2 billion, a day after the edtech company’s key investors initiated moves to oust co-founder and chief executive Byju Raveendran.
Alpha Inc.’s court-appointed CEO Timothy Pohl initiated Chapter 11 insolvency proceedings in a Delaware court stating that the company lacked funds to defend itself against litigation, as per court documents reviewed by Mint.
Alpha has listed its assets in the range of $500 million to $1 billion, with estimated creditors numbering between 100 and 199, according to the documents.
The bankruptcy filing is the latest in a series of escalating troubles for the online tutor. On Thursday, key investors including General Atlantic, Prosus Ventures, Peak XV, and Chan Zuckerberg Initiative pushed for an emergency meeting of shareholders to oust the company’s top leadership, including Raveendran, and recast its board.
In a desperate move earlier in the week, Byju’s parent company Think & Learn Pvt. Ltd approached its investors to raise $200 million at a post-money valuation of $225-250 million—slashed from its earlier estimated worth of about $22 billion.
Alpha’s bankruptcy filing might offer a bit of a cushion, though. Legal experts say its petition would help Byju’s to halt all proceedings against it in the US. A Chapter 11 petition is typically invoked when a business is unable to meet financial obligations and to avoid multiple litigations.
“This Chapter 11 filing would effectively put the assets and cashflows of Byju’s Alpha beyond the reach of the lenders to Byju’s India," said Aaron Solomon, managing partner at Solomon & Co, Advocates and Solicitors.
“Within 120 days of the Chapter 11 filing, Byju’s Alpha would need to file a reorganization plan with the US Courts, which would then consider whether Byju’s Alpha can be revived under a debt restructuring."
Another legal expert, who asked not to be identified, said Alpha's bankruptcy filing “would give Byju’s time to develop a plan to repay the creditors either by selling off some assets or by raising fresh funds".
During Chapter 11 proceedings, a business can continue running its operations under the control of its owners (the debtor), who now function like managers. They will have to follow rules set by the court, and obtain its permission to make significant financial decisions, including borrowing money to stay afloat.
The goal is to give a business time to sort out its debt, renegotiate contracts, and chart a plan to repay creditors.
Yogendra Aldak, partner at law firm Lakshmikumaran & Sridharan, said Chapter 11 filing triggers a moratorium period, preventing a single creditor from seizing assets of the bankrupt company. This ensures fair treatment for all lenders despite hindering immediate debt recovery.
“However, once insolvency proceedings begin, creditors may not fully recover their money, and may only receive a proportional share. This doesn't apply to non-debtor entities, allowing creditors to pursue guarantors for recoveries," Adlak said.
At the heart of Byju’s troubles lies its aggressive expansion in 2020 and 2021, marked by the acquisitions of 10 companies.
During this period, Byju’s established Alpha in the US as a special purpose vehicle, which received $1.2 billion from lenders in 2021. Between April and July 2022, Alpha deposited $533 million with Camshaft Capital Fund and became a limited partner in it.
However, creditors, led by Glas Trust, were displeased that Byju’s failed to secure WhiteHat Jr, a company it acquired for $300 million, to stand as a guarantor for the $1.2 billion loan.
Consequently, Glas Trust seized control of Alpha in March last year, appointing Pohl as the sole director and removing Riju Raveendran, the younger brother of Byju Raveendran, as director.
Byju’s challenged this decision in a Delaware court, which in November found no wrongdoing in the lenders’ consortium appointing a director to the special purpose vehicle. Riju Raveendran was subsequently removed from Alpha’s board.
Glas Trust also alleged, in a plea filed in a Florida court in September, that Alpha had transferred $533 million to Camshaft Capital Fund “to conceal the whereabouts" of the cash.
In January, Byju’s lenders also filed an insolvency application against its parent company Think & Learn before the Bengaluru bench of the National Company Law Tribunal citing loan defaults.
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