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Business News/ Companies / News/  Delaware court restricts Byju’s from use of $533 mn parked overseas
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Delaware court restricts Byju’s from use of $533 mn parked overseas

The defendants are prohibited from transferring or using any of the $533 million in loan proceeds previously held by Camshaft Capital Fund, LP and subsequently transferred to an unnamed, unknown offshore trust

In November 2021, Byju's, once celebrated as India's most valued startup, raised $1.2 billion through a Term Loan B from US lenders, (Photo: Reuters)Premium
In November 2021, Byju's, once celebrated as India's most valued startup, raised $1.2 billion through a Term Loan B from US lenders, (Photo: Reuters)

MUMBAI : A US bankruptcy court has ordered a freeze on $533 million in loan proceeds belonging to Think & Learn Pvt, the parent company of Byju’s. While the term-loan lenders of the troubled edtech startup called it an important step in recovering their dues, Byju’s said the order maintains the status quo and did not require them to submit the money to the court.

On Thursday, a Delaware bankruptcy court issued a preliminary injunction against the defendants in this case—Riju Ravindran, Inspilearn LLC, Camshaft Capital Fund, LP, and its affiliates—prohibiting these entities from moving or using the $533 million in question.

The court also found Byju’s founder Byju Raveendran and his wife Divya Gokulnath to be collaborating with the defendants.

Additionally, the court has issued an arrest warrant for William Morton, the founder of Camshaft Capital, who left the country before the hearing, according to a statement from the steering committee of the ad hoc group of lenders of the $1.2 billion term loan.

“The fact that the parent company is attempting to hide where the assets are is huge. It shows that they are engaged in what appears to be a potential fraud," the US court observed. “Mr. Ravindran…either was being untruthful or he’s the most incompetent officer or director of a company in Delaware history."

“The significance of the court’s ruling for all aggrieved parties owed money by Byju’s cannot be overstated…The court-ordered freezing of assets is an important step towards recovering the missing $533 million, and we will take all necessary legal actions to recover what we are rightfully owed," the lenders said in the statement.

A Byju’s statement said, “This Order merely maintains the status quo, because we have always maintained that the said funds are safely parked in one of our subsidiaries and, as per the order, it will rightfully remain there. In fact, the court denied the primary relief requested—that a mandatory injunction be granted depositing the monies into court."

At the heart of the dispute is the $533 million missing from the $1.2 billion owed to lenders by Think & Learn.

In November 2021, Byju’s, once celebrated as India’s most valued startup, raised $1.2 billion through a Term Loan B from US lenders. A special purpose vehicle, Byju’s Alpha, was incorporated in Delaware for managing the funds.

The company has, however, struggled to repay the loan, resulting in a legal battle with its bondholders. Byju’s also committed a series of “technical defaults" on the loan because it failed to file its financial statements on time and did not satisfy other covenants that had required it to put up guarantors.

In 2022, under the management of founder’s brother Riju Ravindran, Byju’s Alpha transferred $533 million of the loan proceeds to Camshaft Capital Fund, LP. In March 2023, these funds were moved to Inspilearn, another US subsidiary of Byju’s, and then to an undisclosed entity in February 2024.

Despite a court order, the defendants, along with Raveendran and Gokulnath, have not disclosed the whereabouts or status of these funds to the lenders or the new director of Byju’s Alpha, according to a joint statement from the lenders. Last year, the lenders declared a default and seized Byju’s Alpha. They have since attempted to compel Think & Learn to repay the $1.2 billion and locate the $533 million for debt repayment.

“I’m still very upset about the fact that [the defendants] are obfuscating where this money is. And they are trying every trick in the book to be able to say, ‘we don’t know, this guy doesn’t know, that guy doesn’t know, we don’t know where it is, we can’t tell you,’ and I’m tired of it," Judge John T. Dorsey said while passing the order.

The arrest order for Morton comes after his persistent refusal to provide information regarding the location of $533 million. Morton is also fined $10,000 per day until he complies with the court’s demands.

“There should be no doubt that Byju is not the victim he purports to be, but rather the architect of a scheme that has vaporized tens of billions of dollars in value in what was once a great Indian company. We call on Byju to accept the will of Think & Learn’s shareholders and immediately step down as CEO and director to prevent further harm to the company’s employees, students and their families, and India’s credibility among the global investment community," the statement from the lenders added.

“We had also maintained consistently that the lenders last year were aware of the situation of the $500m in BYJU’S Alpha. We are satisfied that this matter has been laid to rest," the statement from Byju’s added. “It is now clear that this so-called adhoc group is working in cohort with certain large investors of BYJU’S to exploit the situation and make windfall gains. This cartel has selectively released some remarks made by the presiding judge to build fake narratives in the media. There should be no doubt that we will continue to fight this falsehood for the sake of all our stakeholders, including the millions of students who we proudly serve. This case represents a concerning attempt by a group of opportunistic foreign lenders to exploit an Indian startup by levelling baseless allegations with the sole intent of extracting punitive monetary concessions."

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ABOUT THE AUTHOR
Sneha Shah
Sneha writes on new economy businesses, private and public marker funding and deals. She writes about startups and the new economy, specifically PE/VC and investment banking.
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Published: 15 Mar 2024, 11:18 AM IST
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