By Jef Feeley and Reshmi Basu
Lenders to Byju’s, once one of India’s hottest tech startups, rightly cited default on a $1.2 billion loan in taking over a unit of the provider of educational technologies, a Delaware judge concluded.
The lenders – which included Redwood Investments LLC and Silver Point Capital LP – had the contractual right to replace a relative of the company’s founder, Byju Raveendran, on the board of directors of Byju’s Alpha, a special purpose company created for financing purposes , by their pseudonym, Delaware. Chancery Judge Morgan Zurn ruled.
Zurn rejected a complaint from Byju’s that Timothy Pohl, tapped by lenders to oversee the special purpose entity, was improperly allowed to take the reins. Pohl was “effectively sitting” as sole director of Byju’s Alpha because of the payment defaults, the judge said in a 41-page ruling.
Lenders have been pushing for repayment of the $1.2 billion loan, amid growing distress at the company after the failure of the pandemic-era e-learning boom. Byju was working to sell his assets and resolve the loan problem when government investigators raided the company’s offices this year. The fight against lenders has also prompted some investors to write down their stakes in one of the world’s largest electronic technology companies.
A lawyer for the lenders said earlier this year that Byju’s Alpha was intended to serve as a holding company to protect their rights in the case. The lenders were not looking to take over the entire electronics technology company, Brock Czeschin, an attorney for Red Tree and Silver Lake, said at a court hearing in May.
Byju’s, based in Bangalore, India, did not immediately respond to a request for comment. The closely-held company had said the lenders’ default arguments were false.
“We are pleased that the Delaware Court of Chancery recognizes that Byju’s has repeatedly defaulted on its loan obligations,” a spokesperson for the lender group said in a statement. “Lenders reserve all rights at their disposal. »
The terms of the loan allowed lenders to take control of Bjyu’s pledged Alpha shares if a default triggered that right, Zurn said in his Nov. 2 ruling. When a unit of the company failed to secure support from the Indian government as a guarantor for the loan, the lenders filed a notice of default in March, according to a transcript of the company’s decision announcement. judge.
Pohl removed all of the company’s executives and took over as CEO after being named sole director of Byju’s Alpha, according to the transcript. The lawsuit over the loan was filed by Glas Trust Co., which serves as trustee for the lenders. The trust turned to Pohl to oversee Byju’s Alpha on behalf of creditors.
Byju’s complained that the ex-lawyer, who was paid at least $375,000 for his role as the firm’s top leader, was taking excessive fees. Zurn rejected that argument, saying Pohl’s $75,000 monthly salary was authorized by a “status quo” order she entered in the case to protect Byju’s Alpha.
The case is Glas Trust Company v. Ravindran, 2023-0488, Delaware Chancery Court (Wilmington).