BYJU's $533M Loan Scandal

Byju's, once celebrated as India's most valued startup, is embroiled in a legal battle with its lenders over a missing $533 million from a $1.2 billion loan raised in November 2021. A Delaware bankruptcy court has ordered a freeze on the loan proceeds and issued an arrest warrant for William Morton, the founder of Camshaft Capital, who left the country before the hearing.

The court found Byju's founder Byju Raveendran and his wife Divya Gokulnath collaborating with the defendants, Riju Ravindran, Inspilearn LLC, Camshaft Capital Fund, LP, and its affiliates.

The judge expressed concerns about the defendants' attempts to conceal the location of the missing funds, stating, "The fact that the parent company is attempting to hide where the assets are is huge. It shows that they are engaged in what appears to be a potential fraud."

The lenders, represented by a steering committee, called the court's ruling a significant step towards recovering their dues. They emphasized their commitment to taking all necessary legal actions to recover the missing funds.

In response, Byju's stated that the order merely maintains the status quo and that the funds are safely parked in one of their subsidiaries. The company also accused the lenders of working with certain large investors to exploit the situation for windfall gains.

The legal dispute stems from a series of events that began with the transfer of $533 million from Byju's Alpha, a special purpose vehicle incorporated in Delaware, to Camshaft Capital Fund, LP in 2022. The funds were later moved to Inspilearn, another US subsidiary of Byju's, and then to an undisclosed entity in February 2024. Despite a court order, the defendants have not disclosed the whereabouts or status of these funds to the lenders or the new director of Byju's Alpha.

As the legal battle continues, the court's actions and the lenders' statements underscore the seriousness of the allegations against Byju's and its management. The outcome of this case could have significant implications for the edtech giant and India's startup ecosystem as a whole.

Our Opinion:

Byju's $533M vanishing act is a startup horror story for the ages. This alarming situation, marked by delayed financial disclosures, covenant breaches, and an arrest warrant for an involved party, highlights critical concerns for us in the alternative finance sector. The firm's precarious handling of substantial funds not only questions its corporate governance but also threatens the integrity of the Indian startup ecosystem. Lenders are now reminded of the vital importance of maintaining rigorous due diligence and advocating for robust corporate oversight to prevent the erosion of trust and financial stability.

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