Byju’s lenders prevail in legal battle over loan default, assert control of unit 

Indian ed-tech startup, Byju’s, faced a setback as lenders successfully claimed a default on a $1.2 billion loan, enabling them to assume control of a unit of the education-technology giant.

According to a Bloomberg report, the lenders, including Redwood Investments LLC and Silver Point Capital LP, exercised their contractual rights to replace a relative of Byju’s founder, Byju Raveendran, on the board of Byju’s Alpha. Delaware Chancery Court Judge Morgan Zurn ruled in favour of the lenders, rejecting Byju’s complaint that Timothy Pohl, the lenders’ nominee, was improperly authorised to take control. Judge Zurn stated that Pohl's appointment was a consequence of the defaults.

Amid the company's financial distress following the waning of the pandemic-driven surge in online learning, lenders pressed for the repayment of the $1.2 billion loan. Byju’s had been actively managing the loan issue and seeking to sell assets when government investigators conducted searches at the company's offices earlier this year.

Add WION as a Preferred Source

The lender dispute also led some investors to devalue their stakes in one of the world's largest ed-tech firms. The lenders clarified that their intention was not to take over the entire ed-tech company but rather to protect their rights through Byju’s Alpha, which served as a holding company, as stated by Brock Czeschin, a lawyer for Red Tree and Silver Lake, in a May court hearing.

The company had previously dismissed the lenders' default claims as baseless. A spokesperson for the lender group expressed satisfaction with the Delaware Chancery Court's acknowledgement of Byju’s repeated loan defaults. The lenders asserted that they reserve all rights available to them.

The loan terms permitted lenders to take control of pledged Byju’s Alpha shares if a default triggered this right, as outlined in Judge Zurn's November 2 ruling. Following a failure to secure the Indian government’s backing as a loan guarantor, lenders filed a notice of default in March.

Timothy Pohl, appointed as the sole director of Byju’s Alpha, assumed the role of CEO after removing all company officers. The legal dispute over the loan was initiated by Glas Trust Co., the trustee for the lenders, which appointed Pohl to oversee Byju’s Alpha on behalf of the creditors.

Byju’s raised concerns about Pohl's compensation, asserting that he, as the former lawyer, was receiving excessive fees. However, Judge Zurn rejected this argument, stating that Pohl's $75,000-per-month pay was authorized by a "status-quo" order entered in the case to safeguard Byju’s Alpha.

(With inputs from Bloomberg)

WATCH WION LIVE HERE