Byju's Turmoil: Raveendran Loses Control Amid BCCI Insolvency Case
17 July 2024 10:57 AM GMT
BYJU'S App Logo (DC File Photo)
Hyderabad: BYJU'S founder is losing control of his company after an Indian Court pushed it into insolvency. This landmark ruling may seal the fate of a startup that once symbolized India's technology ambitions.
Entrepreneur and former billionaire Byju Ranveendran now has only a few options left to try and salvage a company that ranked among the world's most valuable internet startups at its peak.
In response to a plea from one of the company's creditors, the influential cricket governing body of the nation, the National Company Law Tribunal on Tuesday permitted bankruptcy proceedings to commence against the corporation. It appointed an interim resolution specialist to replace the founder. The court also invited Byju's vendors, employees, and other creditors to submit claims.
The decision marks the largest step yet towards the brief but highly visible demise of the $22 billion online education business. When Byju's was founded in 2015, it swiftly acquired popularity and experienced a financial boom during the Covid-19 outbreak. This led Raveendran to extend the company overseas and become a billionaire. However, as infections subsided and classes began, the company's cash reserve decreased, and it encountered legal issues in both its native market and the US.
Vidhyashankar Sathyamurthi, a technology policy fellow with think-tank The Pacific Forum and former executive director at Grant Thornton India, said "The fate of Byju’s is a great lesson for India’s startup economy."
"It’s also a cautionary tale of investors’ greed and the ambitions of a founder," he added.
Previously a shining example of India's nascent startup scene, Raveendran's company is just one of many once-lionized tech companies that have since encountered legal or financial issues. The company that made internet banking famous in India, Paytm, is having trouble dealing with the impact of the central bank's sudden suspension of a major section.
One of the many bankruptcy lawsuits that Byju's is battling both domestically and internationally is the one that the Board of Control for Cricket in India filed. Byju's was the national team's sponsor. The business court stated in its ruling that there was "existence of a debt and a default in the payment of debt is clearly established," and that there was no justification for rejecting the cricket body's appeal. According to the cricket board, Byju's owes it 19. million rupees (1.59 billion rupees).
Satwinder Singh, managing partner at Aekom Legal, said, "This effectively means that founders and existing board of directors lose control of Byju's."
"The resolution professional will now be responsible for carrying out the operations of the company, and keep it as a going concern until the insolvency process is complete," he added.
Byju's can file an appeal of the ruling and, could halt the insolvency proceedings if it wins a stay order. However, for the time being, insolvency professionals outlined the expected future steps: the designated caretaker will get in touch with Byju's suppliers and creditors, and they will establish a committee of creditors to decide on a plan of action.
The committee may consist of holders of a $1.2 billion term loan that Byju's US branch defaulted on, starting a convoluted court case that led to the US arm's bankruptcy.
On Tuesday, Byju's stated that it is certain it can settle with the cricket organization and that it is still hoping to do so. A spokesperson for Byju's said in a statement, "In the meantime, our lawyers are reviewing the order and will take necessary steps to protect the company’s interests."
If Byju’s manages to settle its dues, the BCCI can revoke its application. As an alternative, Byju's can apply to settle all of its debts; however, according to Sumit Binani, an independent insolvency expert unaffiliated with the Byju's proceedings, the committee of creditors must approve it with a minimum vote of 90%.
With the economic crunch that Raveendran has been facing, the likelihood of a settlement is uncertain. Since Byju's is mostly an internet business, its assets might not be very valuable, but its name might draw customers, according to Binani.
To keep the company solvent in recent months, Raveendran, whose rise from tutor to huge business leader enthralled a country that was then infatuated with charismatic digital entrepreneurs, has been taking increasingly drastic steps.
To obtain money for staff salaries, Raveendran has pledged his home and those held by his family members, and some board members have resigned. To obtain money, it also offered fresh stock for sale at a discount of almost 90% from its previous funding round. But it is not allowed to use the money, according to an Indian court.
The decision marks the largest step yet towards the brief but highly visible demise of the $22 billion online education business. When Byju's was founded in 2015, it swiftly acquired popularity and experienced a financial boom during the Covid-19 outbreak. This led Raveendran to extend the company overseas and become a billionaire. However, as infections subsided and classes began, the company's cash reserve decreased, and it encountered legal issues in both its native market and the US.
Vidhyashankar Sathyamurthi, a technology policy fellow with think-tank The Pacific Forum and former executive director at Grant Thornton India, said "The fate of Byju’s is a great lesson for India’s startup economy."
"It’s also a cautionary tale of investors’ greed and the ambitions of a founder," he added.
Previously a shining example of India's nascent startup scene, Raveendran's company is just one of many once-lionized tech companies that have since encountered legal or financial issues. The company that made internet banking famous in India, Paytm, is having trouble dealing with the impact of the central bank's sudden suspension of a major section.
One of the many bankruptcy lawsuits that Byju's is battling both domestically and internationally is the one that the Board of Control for Cricket in India filed. Byju's was the national team's sponsor. The business court stated in its ruling that there was "existence of a debt and a default in the payment of debt is clearly established," and that there was no justification for rejecting the cricket body's appeal. According to the cricket board, Byju's owes it 19. million rupees (1.59 billion rupees).
Satwinder Singh, managing partner at Aekom Legal, said, "This effectively means that founders and existing board of directors lose control of Byju's."
"The resolution professional will now be responsible for carrying out the operations of the company, and keep it as a going concern until the insolvency process is complete," he added.
Byju's can file an appeal of the ruling and, could halt the insolvency proceedings if it wins a stay order. However, for the time being, insolvency professionals outlined the expected future steps: the designated caretaker will get in touch with Byju's suppliers and creditors, and they will establish a committee of creditors to decide on a plan of action.
The committee may consist of holders of a $1.2 billion term loan that Byju's US branch defaulted on, starting a convoluted court case that led to the US arm's bankruptcy.
On Tuesday, Byju's stated that it is certain it can settle with the cricket organization and that it is still hoping to do so. A spokesperson for Byju's said in a statement, "In the meantime, our lawyers are reviewing the order and will take necessary steps to protect the company’s interests."
If Byju’s manages to settle its dues, the BCCI can revoke its application. As an alternative, Byju's can apply to settle all of its debts; however, according to Sumit Binani, an independent insolvency expert unaffiliated with the Byju's proceedings, the committee of creditors must approve it with a minimum vote of 90%.
With the economic crunch that Raveendran has been facing, the likelihood of a settlement is uncertain. Since Byju's is mostly an internet business, its assets might not be very valuable, but its name might draw customers, according to Binani.
To keep the company solvent in recent months, Raveendran, whose rise from tutor to huge business leader enthralled a country that was then infatuated with charismatic digital entrepreneurs, has been taking increasingly drastic steps.
To obtain money for staff salaries, Raveendran has pledged his home and those held by his family members, and some board members have resigned. To obtain money, it also offered fresh stock for sale at a discount of almost 90% from its previous funding round. But it is not allowed to use the money, according to an Indian court.
Significant supporter Prosus NV revealed last month that it had written down to zero the value of its 9.6% interest in Byju's. Prosus was drawn to the Chan-Zuckerberg Initiative, which was started by Mark Zuckerberg, Tiger Global Management, and the massive private equity firm Silver Lake Management, as well as other investors drawn by the prospect of a new kind of education gaining traction in the nation of 1.4 billion people and elsewhere.
( Source : Deccan Chronicle )
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