US judge orders edtech major Byju’s to freeze $533Mn

Byju’s is set to face heat from the US, wherein its pending financial troubles with US lenders continue to boil. And a recent US court decision has only intensified the pressure the company is under. On Thursday, US Bankruptcy Judge John Dorsey, ordered Byju’s parent company, Think & Learn, to freeze $533Mn, the exact amount it has been accused of hiding with a Miami based hedge fund. The decision is aimed at protecting the money for lenders who claim Byju’s owes them over $1.2Bn.

The judge’s decision is seen as a mixed victory for the lenders. They had previously requested that the entire $533 million be placed under the control of the federal court. This would have prevented Byju’s from spending the money. While the freeze represents a win for the lenders, it doesn’t guarantee they will ultimately receive the full amount.

The itself arose following the lenders’ seizure of control over a holding company established by Think & Learn to issue $1.2 billion in debt. Subsequently, Byju’s Alpha (a subsidiary controlled by Byju’s lenders), had filed for bankruptcy under the oversight of Judge Dorsey. Ravindran is currently appealing a court decision in Delaware approving the seizure of Byju’s Alpha.

And if the situation is not complicated enough, the US bankruptcy judge on Thursday also ordered the arrest of William Cameron Morton, a hedge fund manager. According to the lenders, the edtech giant had transferred the money to a hedge fund managed by William C. Morton. This hedge fund then reportedly moved the money to an unknown offshore trust. Morton has been fined $10,000 per day until he cooperates with the investigation, and if found, will be locked up for contempt of court under Judge Dorsey’s order.

Dorsey, skeptical of claims by Byju’s director Riju Ravindran (Byju Raveendran’s brother and one of the directors of the company) regarding his inability to locate the funds, also ordered him to assist in finding the money, expressing doubt that Ravindran couldn’t obtain this information from Think & Learn.

Byju’s, for its part, is contesting the lenders’ claims in state courts located in Delaware and New York. Their defense argues that the lenders are to blame for the company’s financial difficulties. According to Byju’s, the lenders were overly aggressive in declaring the debt in default. Ravindran’s attorney, Sheron Korpus, argued that the lenders bore responsibility for any financial challenges faced by Think & Learn, justifying the company’s decision to withhold the funds.

The situation continues to bring home the harsh reality check faced by Byju’s, which was once the shining star of India’s booming edtech sector. Byju’s rapid growth trajectory was fueled by a series of acquisitions. The company snapped up several smaller edtech firms in a bid to dominate the Indian market. However, this aggressive expansion strategy came at a cost. Byju’s took on a significant amount of debt to finance these acquisitions, leaving them vulnerable in a changing economic climate.

Later, iIn June 2023, Byju’s defaulted on a $1.2 billion loan from foreign lenders. This triggered a series of legal battles, with lenders seeking repayment and Byju’s contesting the terms of the loan agreement. Things were made worse when the edtech sector in India, once a hotbed of investment, has witnessed a slowdown. With the pandemic receding, the urgency for online learning solutions has lessened, resulting in significant layoffs across several departments at Byju’s.