Byju's US Arm Alpha Accused Of Hiding $500 Million From Lenders, Faces Lawsuit

Alpha Inc is being sued by a representative acting on behalf of lenders who are owed the aforementioned $1.2 billion. The litigants have claimed that Alpha Inc hid $500 million

The lenders argue that due to a previous default, they possess the authority to appoint their representative, Timothy R. Pohl, as the company's leader.

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Byju's lenders have accused the edtech start-up of concealing $500 million (approximately Rs 4,134 crores) in a US firm Alpha, one of its subsidiaries. According to a Bloomberg report, the company has been sued in the Delaware court in the US for the recovery of a $1.2 billion loan. 

The report said that Alpha Inc is being sued by a representative acting on behalf of lenders who are owed the aforementioned $1.2 billion. The lawsuit has been filed against Byju's Alpha, Tangible Play, Inc., and Riju Ravindran, who serves as the director of Alpha Inc. The case is known as Glas Trust Company vs Riju Ravindran, 2023-0488, Delaware Chancery Court (Wilmington).

The litigants have claimed that Alpha Inc hid $500 million as part of a fight between creditors and the company. The lenders argue that due to a previous default, they possess the authority to appoint their representative, Timothy R. Pohl, as the company's leader. Lenders claim that because of a default earlier this year, they have the right to put their representative on the board of Alpha Inc. 

On the other hand, Byju's has refuted the claim that it is hiding $500 million through its US-based company. Terming Byju's Alpha as a non-operative US entity with no employees. In a statement about the matter, the company said, “This is an interim order of a Delaware Court to maintain status quo in relation to BYJU’S Alpha, a non-operative US entity set up to receive the Term Loan B, with no employees."

“The litigants have made bewildering claims that BYJU'S “moved" $500 million from BYJU'S Alpha, insinuating that these acts were somehow wrongful. This is entirely incorrect. We categorically deny these allegations." the company added. 

The legal dispute is another setback for Byju's and its founder Byju Raveendran. Prior to this, the company had been working to address the concerns of creditors seeking to restructure a $1.2 billion (roughly Rs. 99,274 crore) term loan, while also preparing for an anticipated IPO of its tutoring unit Aakash. 

According to Bloomberg, during the ongoing legal proceedings, it was revealed that a senior manager at Byju's Alpha admitted to transferring $500 million out of the company. However, Byju's Alpha's lawyers argued that this action was taken to safeguard the funds from predatory lenders, asserting that it was within their rights as per the loan agreement.

Byju's Alpha maintains that it is meeting all its debt obligations, considering any defaults as technical breaches of the loan agreement. The Delaware Chancery Court presided over by Judge Morgan Zurn, did not make a ruling on the appropriateness of the fund transfer but did order Byju's Alpha managers not to make any significant changes to the company. A trial has been scheduled later this year to determine control over Byju's Alpha, the report added. 

The lawsuit was filed by Glas Trust Company against Byju's Alpha, its director Riju Ravindran, and Tangible Play. Both the companies being sued are subsidiaries of Think and Learn Private. Riju Ravindran also serves as a director of Think and Learn, as per regulatory filings.

The report said that Byju's Alpha is regarded as a holding company that lenders seek to control to safeguard their rights, according to statements made during the hearing. The lenders clarified that their aim is not to take over the entire edtech company, but rather to protect their interests.

Byju's Alpha argued during the court proceedings that the lenders, who are distressed debt investors, are unjustly seeking to profit from the company's debt. They also mentioned that a substantial capital infusion is expected in the next two weeks, enabling them to repay the $1.2 billion (roughly Rs. 99,274 crore) owed to the creditors. Byju's Alpha's lawyers accused the lenders of deliberately attempting to harm the business without any intention to run the company.