Byju's Faces Crisis: Indian Ed-Tech Startup Works to Restore Investor Trust Amid Auditor Departure and Board Reshuffle
Indian ed-tech startup, Byju's, faces challenges as it deals with the departure of its auditor and board members. The company reassures investors of its commitment to releasing delayed financials and strengthening accounting processes.
In a bid to regain stability amid increasing scrutiny from regulators and investors, Indian education-technology startup Byju's is taking proactive steps to address the growing crisis. Byju's, once hailed as a symbol of India's thriving internet boom, recently witnessed the departure of its auditor and three board members within a week, raising concerns about the company's future. However, billionaire founder Byju Raveendran is actively engaging with investors to provide assurance that the startup will soon release its long-overdue financial reports and reinforce its accounting procedures.
During a call with investors, Raveendran openly acknowledged his failure to implement robust processes that could have prevented the delay in closing accounts on time. He emphasized the ongoing improvements being made within the company's systems, with the assistance of a newly appointed finance chief and general counsel, according to individuals familiar with the matter.
According to confidential sources, Byju's has informed investors that it is making progress in finalizing its fiscal 2022 financial numbers by the end of September. The startup has enlisted the services of MSKA & Associates as its new auditor, replacing Deloitte Haskins & Sells, although this information has not been officially disclosed.
Once considered a prominent player in India's thriving startup ecosystem, Byju's now finds itself embroiled in a contentious dispute with its creditors. In response to the declining demand for online tutoring following the easing of COVID-19 restrictions and the reopening of schools, the company has resorted to slashing costs by laying off thousands of employees.
Having missed multiple deadlines for submitting audited financial accounts, Byju's has faced significant challenges. The default on a $1.2 billion term loan has triggered a legal battle with creditors seeking expedited repayment.
Furthermore, insiders have revealed that India's company regulator is actively gathering information about Byju's. The Ministry of Corporate Affairs is expected to make a final decision in the near future regarding the initiation of a formal investigation into the startup.
Zulfiquar Memon, managing partner at MZM Legal, the legal representative for Byju's, has stated that the company has not received any communication from the Ministry of Corporate Affairs regarding the auditor's resignation or related matters. Requests for comment from the ministry remain unanswered.
In an effort to restore investor confidence, Raveendran and newly appointed CFO Ajay Goel held a call on Saturday to assure stakeholders that the necessary actions are being taken to fortify processes and rectify past missteps. The company's systems are being revamped with the support of Goel and General Counsel Roshan Thomas, as per insider sources.
Negotiations with creditors in US courts are reportedly progressing, and Byju's is optimistic about reaching a resolution soon, according to Thomas's statements during the investor call. However, Byju's declined to provide further comments on the matter.
During his first shareholder call since joining the firm, Goel reiterated the company's commitment to allocating sufficient resources to complete its financial statements. He assured investors that audited accounts for the fiscal year ending on March 31, 2022, will be finalized by September 30, while accounts for the subsequent year will be completed by December. This information was initially reported by Reuters.
The distressing state of Byju's financial affairs is reflected in the trading value of its $1.2 billion loan, which is currently quoted at 63.8 cents on the dollar, according to data compiled by Bloomberg. A value below 70 is generally indicative of financial distress.
Byju's has been diligently working on board reconstitution for the past three weeks, as revealed by Raveendran during the investor call. Once the company accepts the resignations of directors GV Ravishankar, Russell Dreisenstock, and Vivian Wu, their board member information will be promptly updated in government databases, Raveendran confirmed.
During the call, the departing board members expressed their commitment to collaborating with the company in reconstituting the board, offering reassurance to concerned investors, as per insider sources.