BYJU’S Accused Of Transfering Funds From US Units In Violation Of Bankruptcy Rules

In another trouble for embattled BYJU’S, a lawsuit in the federal court of Delaware in the US has reportedly accused the edtech giant of transferring $700,000 from its US affiliates in violation of the bankruptcy proceedings.

Citing the court papers, Bloomberg said that a trustee of one of the affiliates of the Byju Raveendran-led company has accused BYJU’S of syphoning off funds to Whitehat Education Technology. The money was to be repaid to BYJU’S US-based creditors, which are at war with the company over pending dues.

The trustee is seeking to recover nearly $700,000 that was transferred from entities under her oversight.

The US-based lenders have been fighting legal battles in the US as well as in India to recover dues from BYJU’S. The edtech giant has also been accused of hiding $533 Mn from the lenders. In August, a US court directed Riju Ravindran, brother of Byju Raveendran, to pay $10,000 a day till he helps locate the missing amount.

As a result, BYJU’s four units in the US are facing bankruptcy proceedings, the Bloomberg report said. As per the rules in the US, such companies cannot transfer money without an approval from the bankruptcy judge.

However, the lawsuit alleges that between September 26 and October 7, funds were transferred from the Stripe account of the bankrupt companies to a Wells Fargo bank account associated with Whitehat.

The trustee has alleged that individuals in India using “Byju-related email accounts” have attempted to access the US debtors’ account, the report added.

Inc42 has reached out to BYJU’S for comments on the development. The story will be updated on receiving a response.

At the core of the issue is the Term Loan B secured by BYJU’S through a credit agreement in November 2021. A total of 37 financial institutions participated in this loan, which stipulated that lenders could enforce their rights if the edtech startup defaulted on its loan repayments. Consequently, BYJU’S parent, Think & Learn Private Limited, pledged 100% of its equity in its US-based subsidiary, BYJU’S Alpha, as a collateral for the loan. 

Last year, after the struggling edtech startup defaulted on its payments, the consortium of lenders, represented by Glas Trust, became eligible to exercise their remedies as outlined in the credit agreement.

Quickly afterwards, Glas Trust filed a plea before the Delaware Court of Chancery and sought a declaration that their actions were valid. Thereafter, in November last year, the court delivered a ruling in favour of the consortium of lenders and agreed with Glas Trust’s interpretation of the credit agreement covenants and determined its actions, which included talking over BYJU’S Alpha, to be valid. 

Since then, the consortium of lenders has also been mounting a legal challenge in India against BYJU’S. 

The edtech startup, which was once the poster boy of the Indian startup ecosystem, has been plagued by an acute funding crunch, slowdown in operations, among others, over the last few years, which has resulted in it currently undergoing bankruptcy proceedings in India as well.