Byju's Founder Loses Control of Company as Court Declares Insolvency

Byju's founder loses control as court declares insolvency. Learn how this affects the company and the future of India's tech industry.

Jul 16, 2024 - 09:59
Jul 16, 2024 - 10:00
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Byju's Founder Loses Control of Company as Court Declares Insolvency
Byju's Founder Loses Control of Company as Court Declares Insolvency

Byju Raveendran, the founder of Byju's, has lost control of his company due to a court ruling in India that has pushed the firm into insolvency. This landmark decision could determine the future of a startup that once represented India's technological aspirations. Raveendran, who was once a billionaire, now has limited options to rescue his company, which was among the world's leading internet startups.

Court Ruling and Bankruptcy Proceedings

On Tuesday, the National Company Law Tribunal approved bankruptcy proceedings against Byju's and appointed an interim resolution professional to replace Raveendran. This decision followed a petition from the Board of Control for Cricket in India (BCCI), one of the company's creditors. The court has also invited other creditors, employees, and vendors of Byju's to submit their claims.

Rapid Rise and Fall of Byju's

Byju's, founded in 2015, quickly gained popularity and saw a significant business surge during the COVID-19 pandemic. This growth allowed Raveendran to expand internationally and become a billionaire. However, as the pandemic subsided and schools reopened, the company's cash reserves diminished, leading to legal troubles in both the US and India.

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Expert Opinions on Byju's Situation

"The situation with Byju's serves as an important lesson for India's startup community," said Vidhyashankar Sathyamurthi, a technology policy fellow at The Pacific Forum and former executive director at Grant Thornton India. "It highlights the risks of investor greed and the ambitions of founders."

Other Troubled Tech Firms

Byju's, once a symbol of India's growing startup industry, is now one of several tech firms facing financial and legal challenges. Paytm, which popularized online payments in India, is also struggling after the central bank abruptly suspended a key division.

BCCI's Petition and Financial Troubles

The BCCI's petition is one of several bankruptcy cases Byju's is fighting both domestically and internationally. The court confirmed the existence of debt and default in payment, supporting the cricket body's petition. The BCCI claims it is owed 1.59 billion rupees ($19 million) by Byju's.

Impact on Byju's Leadership and Operations

"This means the founders and current board lose control of Byju's," said Satwinder Singh, managing partner at Aekom Legal. "The resolution professional will now manage the company's operations and keep it running until the insolvency process is complete."

Options for Appeal and Future Steps

Byju's can appeal the decision and potentially halt the insolvency proceedings if they secure a stay order. For now, the appointed caretaker will communicate with Byju's vendors and creditors to form a committee that will decide on the next steps. This committee could include holders of a $1.2 billion term loan, which a US unit of Byju's defaulted on, leading to a complex legal battle and the US arm's bankruptcy.

Hope for Settlement

Byju's expressed hope of settling with the cricket body and confidence in resolving the issue. "Our lawyers are reviewing the order and will take necessary steps to protect the company's interests," a spokesperson for Byju's said in a statement.

Financial Struggles and Possible Outcomes

Given Raveendran's ongoing financial struggles, the possibility of a settlement remains uncertain. Byju's primarily operates online, so its physical assets may not have substantial value, although its brand could attract buyers, noted Sumit Binani, an independent insolvency professional not involved in the Byju's case.

Desperate Measures to Save the Company

Raveendran, who transitioned from a tutor to leading a major business, has taken increasingly drastic measures to keep the company afloat. Several board members have resigned, and Raveendran has pledged his home and those of his family members to raise funds for employee salaries. The company also sold new stock at a significant discount to raise capital, but an Indian court has barred it from using those funds.

Investor Write-downs

Major investor Prosus NV recently wrote down the value of its 9.6% stake in Byju's to zero. Prosus, along with other investors like the Chan-Zuckerberg Initiative, Tiger Global Management, and Silver Lake Management, was drawn by the promise of innovative education solutions in a country of 1.4 billion people and beyond.

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