BYJU’S Vs TLB Lenders: US Bankruptcy Court Rules In Favour Of Creditors

A US bankruptcy court has ruled in favour of the lenders of BYJU’S in connection with a case involving alleged fraudulent transfer of $533 Mn out of the $1.2 Bn term loan B (TLB) extended to the troubled edtech startup. 

While granting motions moved by BYJU’S Alpha, a bankrupt US-based subsidiary of the edtech company which was taken over by the lenders after a loan default, Justice John T Dorsey of the US bankruptcy court in Wilmington, Delaware on Thursday (February 27) directed both the creditors and BYJU’S to submit a “joint proposed order” on the quantum of damages. 

“The parties should submit a joint proposed order under certification of counsel. If unable to agree on the amount of the judgment, the parties should meet and confer regarding a briefing schedule and dates for an evidentiary hearing on the issue of damages,” read the order. 

At the heart of all these are two transfers. The first transfer pertains to a series of wire transfers between April 2022 and July 2022, when BYJU’S Alpha (then under BYJU’S parent Think & Learn Pvt Ltd.) made 11 transactions totalling $533 Mn to Camshaft Fund. The second transaction pertains to BYJU’S cofounder and CEO Byju Raveendran transferring BYJU’S Alpha’s “LP Interest” to a Delaware-based subsidiary Inspilearn for “no consideration”.

With regards to the “alleged” “first transfer”, the Court sided with the TLB lenders of BYJU’S. 

“Considering all the evidence before me, I find there to be no genuine issue of material fact as to the Debtor’s claim that the First Transfer is an actual fraudulent transfer as to Camshaft. For these reasons, the Motion with respect to Count I (as to Camshaft) is granted,” read the order.

On the count of “actual fraudulent transfer against Inspilearn and T&L(Think & Learn Pvt Ltd.)”, the Court noted that the transfer was made with “fraudulent” intent. 

“Having considered the evidence presented by Debtor (BYJU’S Alpha and lenders), and the lack of any opposing evidence from T&L, I am satisfied that Debtor has established that the second transfer was made with fraudulent intent…,” read the order. 

With regards to the TLB lenders’ complaint that Riju Ravindran (BYJU’S CEO Byju Raveendran’s brother and the single employee at Inspilearn and erstwhile BYJU’S Alpha) breached his fiduciary duty, the court found him guilty of the charge. 

Justice Dorsey also granted BYJU’S Alpha’s motion that sought to declare the second transfer, and all subsequent transfers, made by Think & Learn as “void”. 

The Delaware court also granted the debtor’s “claim for conversion“ against Ravindran and T&L arising out of the erstwhile BYJU’S Alpha’s (then under Raveendran’s control) transfer of the LP interest without corporate authority.

In simple parlance, a “claim for conversion” is filed when a person “wrongfully” takes, uses or interferes with another person’s personal property without the latter’s consent.

“The evidence makes clear that as of March 3, 2023, Pohl (Timothy R Pohl, the restructuring professional appointed by GLAS Trust after lenders took over BYJU’S Alpha) was the only party with corporate authority to direct the use, possession, transfer, or disposition of the property of the debtor. Because T&L and Ravindran lacked corporate authority to exercise control over the debtor’s property on March 31, the transfer of the LP interest was a wrongful disposition of the debtor’s property. This constitutes conversion under applicable law,” observed the court. 

Meanwhile, the creditors, in a statement, hailed the order and said, “We are gratified (that) the Court unequivocally recognized that Riju Ravindran, Camshaft, and BYJU’s together conducted a deliberate fraud on a global scale arising from the theft of $533 million. This is a significant step forward in the lenders’ efforts to recover the stolen funds that are rightfully owed to them”.

This came on the same day as Raveendran, in a LinkedIn Post, reposted by wife and former BYJU’S director Divya Gokulnath, trained guns at the edtech’s TLB lenders. In the post, he alleged that he and several employees of the company received a document with “conclusive evidence of criminal collusion” between EY India, Glas Trust and the interim resolution professional (IRP) “who was appointed by an Indian court to protect BYJU’S but ended up destroying it”.

At the heart of all this is the $1.2 Bn TLB extended by 37 financial institutions to the troubled edtech major through a credit agreement in November 2021. As funding winter escalated, the company defaulted on the payments, which led to the creditors dragging BYJU’S to various courts.