(Bloomberg) -- Lenders to Byju's, once one of India's hottest tech startups, properly cited a default on a $1.2 billion loan when taking over control of a unit of the education-technology provider, a Delaware judge concluded.
The lenders – which include Redwood Investments LLC and Silver Point Capital LP – were within their contractual rights to replace a relative of company founder Byju Raveendran on the board of Byju's Alpha, a special-purpose company formed for financing purposes, with their nominee, Delaware Chancery Court Judge Morgan Zurn ruled.
Zurn rejected a complaint by Byju's that Timothy Pohl, tapped by lenders to oversee the special-purpose entity, was improperly authorized to take the reins. Pohl was “effectively seated” as the sole director of Byju's Alpha because of the defaults, the judge said in a 41-page ruling.
Lenders have been pushing hard for the repayment of the $1.2 billion loan amid the company's mounting distress after a pandemic-era boom in online learning fizzled out. Byju's had been working to sell assets and deal with the loan issue when government investigators searched company offices this year. The lender fight also has prompted some investors to write down their stakes in one of the world's largest ed-tech companies.
A lawyer for the lenders said earlier this year that Byju's Alpha was intended to serve as a holding company to protect their rights in the case. The lenders weren't seeking to take over the entire ed-tech company, Brock Czeschin, a lawyer for Red Tree and Silver Lake, said in a May court hearing.
Bengaluru, India-based Byju's didn't immediately respond to a request for comment. The closely held company had said the lenders' default arguments are bogus.
“We are pleased the Delaware Chancery Court agrees that Byju's has repeatedly defaulted on its loan obligations,” a spokesperson for the lender group said in a statement. “The lenders reserve all rights available to them.”
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The loan terms allowed lenders to take control of pledged Bjyu's Alpha shares if a default triggered that right, Zurn said in her Nov. 2 ruling. When a company unit failed to get the Indian government's backing as a loan guarantor, the lenders filed a notice of default in March, according to a transcript of the judge's announcement of her decision.
Pohl removed all of the company's officers and took over as CEO after he was was appointed as sole director of Byju's Alpha, according to the transcript. The suit over the loan was filed by Glas Trust Co., which serves as trustee for the lenders. The trust turned to Pohl to oversee Byju's Alpha on behalf of the creditors.
Byju's complained that the ex-lawyer, whose received at least $375,000 for his role as the firm's supreme leader, was reaping excessive fees. Zurn rejected that argument, saying Pohl's $75,000-per-month pay was authorized by a “status-quo” order she entered in the case to protect Byju's Alpha.
The case is Glas Trust Company v. Ravindran, 2023-0488, Delaware Chancery Court (Wilmington).
(Updates with lawyer's description of Byju's Alpha in fifth paragraph. An earlier version of the story corrected the relationship between Byju's and Byju's Alpha.)
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