Edtech company Byju's in default of $1.5 bn loan, affirms Delaware SC

Allows US lenders to take control of firm's American assets, primarily Byju Alpha

The Supreme Court (SC) of Delaware has affirmed that Indian edtech company Byju’s has defaulted on a $1.5 billion loan, enabling lenders to “exercise remedies”.
 

The ruling on September 23 permits lenders to take control of Byju’s assets in the United States, primarily Byju's Alpha, and demand full repayment. Timothy Pohl has been appointed as the sole director of Byju's Alpha for this purpose.
 

In response to the development, Byju’s stated that the ruling has “no bearing on the ongoing legal proceedings in India”. Once India’s most valued startup, the edtech firm has seen its valuation crash by 95 per cent in recent years after a peak of $22 billion in 2022.
 

Meanwhile, lenders issued a statement asserting that the Delaware Supreme Court “decisively affirmed what we have known all along: Byju’s breached and defaulted on the credit agreement it knowingly and willingly entered into.”
 

 “Most notably, this ruling confirms that Byju’s was in default, which both Byju (Raveendran) and Riju personally acknowledged when they signed multiple amendments to the credit agreement on Byju’s behalf between October 2022 and January 2023,” the statement said, referring to the edtech company's founder and his younger brother. It further said, as validated by the Delaware Supreme Court, the lenders were “well within their contractual rights to accelerate the term loan and take control of Byju's Alpha”.
 

The case revolved around a $1.5 billion Term Loan B (TLB) guaranteed by Think & Learn, Byju’s parent company. In August 2023, the Delaware Court of Chancery had ruled in favour of GLAS Trust, determining that Byju’s had failed to meet its obligations under the loan agreement. GLAS serves as the trustee for lenders owed the amount.
 

Speaking on the development in the US, Salman Waris, managing partner at TechLegis Advocates & Solicitors, opined that the ruling may not have immediate effects on Byju’s Indian operations, it sets a long-term precedent that could be acknowledged by other courts. “This ruling would primarily affect Byju's assets in the US. The court there doesn’t have jurisdiction over business in India, but since action has been taken against Byju’s, it could influence litigation elsewhere or be leveraged by lenders against the edtech firm,” Waris added.
 

In a separate statement, the lenders criticised Byju’s attempts to create an alternative narrative, asserting that the company had been attempting to shift blame. “Byju has attempted to concoct an alternate narrative that Byju’s did not default and to place the blame for the company’s failure on others, rather than repaying the lenders the money that is rightfully owed to us, including disclosing what happened to the $533 million of missing loan proceeds.”
 

The Delaware Supreme Court emphasised that the amendments to the credit agreement made between October 2022 and January 2023 clearly indicate Byju’s voluntary acknowledgment of the default events and the resulting consequences, which include GLAS’s legal right to exercise remedies.
 

 “Nor is this a situation where a sophisticated party tricked an unsophisticated party with fine print and legal jargon. The amendments were contracts extensively negotiated by sophisticated, well-counselled parties, and the several rounds of amendments demonstrate an obvious, deliberate effort by the parties to address this specific issue,” it said.
 

Byju’s, on the other hand, stated that the Delaware ruling does not impact lender disqualification rights, loan acceleration, or GLAS's legal standing in India. “Byju’s wants to emphasise that the recent conclusion reached by a Delaware court has no bearing on the ongoing legal proceedings in India. The Delaware Supreme Court has merely upheld a limited ruling by the Chancery court on the validity of one of their nominees as the director of the shell company, Byju’s Alpha,” the company said.

The edtech firm added the issue of the “validity of the acceleration and subsequent enforcement actions taken by GLAS” under the credit agreement is still pending adjudication before the New York Supreme Court, “which is the only court that has the jurisdiction to do so under the credit agreement”.
 

The company said its contractual right to disqualify certain aggressive lenders remains intact, noting that the Delaware Chancery Court had previously declined to entertain GLAS's request regarding this issue in May 2023. Disqualification rights are crucial protections for borrowers like Byju’s.
 

Currently, the company said, the disqualification of lenders holding over 60 per cent of the TLB remains in effect, with no court decision to the contrary.
 

 “This is also precisely why GLAS is currently not a member of the Committee of Creditors in the ongoing insolvency process of Think and Learn Private Limited,” Byju’s underscored.
 

Byju’s said it is pertinent to mention that the original debt was due for repayment by November 2026. The firm said it had already paid approximately $140 million in interest on the TLB before the lenders represented by GLAS Trust incorrectly attempted to accelerate the payment schedule without court approval. It said the Delaware Supreme Court ruling has no bearing on either the loan acceleration validity, or whether the lenders represented by GLAS are qualified lenders.

Consequently, GLAS holds no legal standing in the US or locus standi in the ongoing litigation before Indian courts.
 

“Byju’s strongly contests the inflated and illegal claims made by GLAS Trust and maintains that their actions are detrimental to all stakeholders involved,” said the company.