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Edtech major Byju’s is grappling with another setback as it faces delay in paying salaries to employees. The delay stems from funds raised through a recent rights issue, which have been locked in a ‘separate account’ due to the ongoing dispute with the investors.
Byju’s has about 15,000 employees. The company management including Byju Raveendran has assured the employees that regardless of the court verdict, they are following a parallel line of credit to ensure employees receive their March salary by April 8th. The employees were expected to get their salaries on Monday.
“We are writing to you today with a heavy heart but with a message of hope and reassurance. We regret to inform you that there will again be a delay in the disbursement of salaries,” said Byju’s management in a letter sent to employees on Monday, a copy of which Business Standard has seen.
“A few misguided foreign investors in Byju’s have obtained an interim order in late February which has restricted usage of the funds raised through the successful rights issue. This irresponsible action by the four foreign investors has compelled us to temporarily hold the disbursal of salaries until the restriction is lifted,” said the letter.
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Cash-strapped startup
Cash-strapped Byju’s and its investors are fighting at the National Company Law Tribunal (NCLT) over the company’s rights issue of $200 million in a petition alleging oppression and mismanagement. The four investors — Prosus, General Atlantic, Sofina, and Peak XV (formerly Sequoia) — had sought a stay on the rights issue at less than 99 per cent enterprise valuation compared to Byju’s peak valuation of $22 billion.
The investors fear the rights issue would wipe out the value of their investment. The National Company Law Tribunal (NCLT), Bengaluru, on Thursday, refused to stay the extraordinary general meeting (EGM). Byju’s held its EGM to increase authorised share capital on Friday.
The NCLT, in its order on February 27, has instructed the edtech firm to place funds obtained from the rights issue in an escrow account. However, these funds cannot be withdrawn until the resolution of the matter related to the rights issue, according to sources. This action is part of the oppression and mismanagement petition filed against Byju’s by four of the company’s investors.
Byju’s said it has faith in the Indian judicial system and eagerly awaits a favourable outcome that will enable it to utilise the funds raised through the rights issue and alleviate the financial challenges that it is currently facing.
Increase authorised capital
In a letter sent early on Friday, Raveendran informed shareholders that the company had secured more than 50 per cent of the vote through postal ballot – first announced on March 7 – to increase authorised share capital to account for the $200 million rights issue.
“We have the necessary vote to increase the authorised capital for the rights issue. It means that once the restrictions on using the raised funds are lifted, we can meet all our salary commitments immediately,” said the letter. “As you might have read, our founder, Byju Raveendran, has once again appealed to disgruntled investors in a collaborative spirit, and we are hoping that litigating investors would have a reasonable spirit in not frustrating our daily lives any longer.”
Byju’s said that it understands the feelings of helplessness that may arise due to these circumstances. “We share your frustration. However, we urge you to hold onto hope and remain resilient. Byju’s has overcome challenges recently, and we firmly believe that together, we will overcome this last hurdle. We are confident that justice will prevail and the financial constraints will be resolved soon,” said the letter.
Byju’s has been facing delays in paying salaries to employees earlier as well. In March, Byju’s processed some portion of salaries for February to employees due to the ongoing dispute with investors. “We processed part salaries for everyone for February late last night (Friday) to the extent of capital we could get outside the rights issue. The company will pay the balance once the rights issue funds are available, which we expect shortly,” said Byju’s management in a letter.
