BYJU’s Bankruptcy Case: US Court Pushes To Retrieve ‘Missing’ $533 Mn

In a significant development in the complex bankruptcy proceedings involving a subsidiary of BYJU’s, a federal judge has offered to drop the arrest order for a Florida hedge fund manager, provided he assists in locating $533 Mn that the Indian edtech company is accused of attempting to conceal.

During a court hearing in Wilmington, Delaware, on Tuesday, US Bankruptcy Judge John Dorsey agreed to rescind the arrest warrant for William C. Morton, the founder of Camshaft Fund.

According to court records, BYJU’S had invested $533 Mn of loan proceeds with the fund last year, Bloomberg reported.

The money was subsequently transferred to a UK lender and then to an unnamed, non-US entity affiliated with BYJU’S.

Lenders are attempting to use the bankruptcy case of a US-based BYJU’s unit to recover the funds.

Judge Dorsey ordered Morton, who appeared at the hearing via video from Dubai but did not speak, to return to the US and meet with lawyers representing BYJU’s lenders within 10 days. If Morton, whom the judge accused of fleeing the US to avoid questioning, fails to comply, Dorsey warned that the arrest order would be reinstated.

The missing $533 Mn is central to a heated dispute between lenders, who are owed $1.2 Bn, and the edtech startup founded by entrepreneur Byju Raveendran.

The money in question is linked to BYJU’S Alpha Inc., a bankrupt shell company affiliated with Think & Learn. This shell company was taken over by the lenders after a loan defaulted. The lenders are now leveraging the bankruptcy case of BYJU’S Alpha Inc. to recover the missing cash.

Last month, Riju Ravindran, brother of BYJU’S founder and CEO Byju Raveendran and a director at Think & Learn Pvt Ltd, was found in contempt of court at a show cause hearing on May 20, 2024, in the United States Bankruptcy Court for the District of Delaware.

Judge John T. Dorsey issued the ruling following Ravindran’s repeated refusal to disclose or ascertain the whereabouts of $533 Mn in term loan proceeds transferred from BYJU’s Alpha, Inc.

In making its ruling, the court found that Riju Ravindran’s testimony “lacks all credibility,” stating that he either knows where the $533 Mn in term loan proceeds is being hidden and will not disclose it, or he did not attempt to find out the location.

Earlier this year, BYJU’S foreign lenders, who jointly provided over 85% of the company’s $1.2 Bn Term Loan B (TLB), filed an insolvency petition with the Bengaluru bench of the National Company Law Tribunal (NCLT) against the startup.

The Chennai bench of the National Company Law Appellate Tribunal (NCLAT) recently dismissed an appeal petition filed by four foreign investors of troubled edtech startup BYJU’S.The appeal was filed against the NCLT April 23 order, in which the Tribunal declined to issue an injunction against BYJU’S for allegedly violating its earlier directives.

BYJU’S net loss surged 81% YoY to INR 8,245.2 Cr (close to $1 Bn) in FY22 even as operating revenues also rose over 120% to INR 5,014.6 Cr during the year under review, largely on the back of coaching arm Aakash.