For more than a year now, the Bengaluru-based edtech company has been in turbulent waters with issues ranging from payment defaults, staff layoffs, boardroom battles and alleged lapses in corporate governance. However, in the case with BCCI over non-payment of Rs 158 crore (almost $19 million) pertaining to a sponsorship deal of the Indian cricket team, Byju’s has seemingly stepped on a tripwire that has resulted in the National Company Law Tribunal (NCLT) admitting the company for insolvency proceedings on July 16.
What does it mean to get admitted into insolvency proceedings?
NCLT’s decision triggered the corporate insolvency resolution process (CIRP) for the company. The tribunal appointed Pankaj Srivastava as the interim resolution professional (IRP), who will be in charge of managing the company through the process. During the insolvency process, the company will have protection from creditors.
What will be Srivastava’s responsibilities?
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Under the provisions of the Insolvency and Bankruptcy Code, 2016, the IRP will manage the company until a committee of creditors is appointed. This committee, headed by a resolution professional, will make a decision on how to recover pending dues from the company. The committee, once formed, will have up to 330 days to find a buyer for the company by inviting bids from potentially interested parties. The company can be revived if a buyer is found and money is recovered to pay the existing dues. However, if the committee is unable to find a buyer, the tribunal could order liquidation of Byju’s.
Is this a done deal?
Not yet. The company’s existing board of directors, which comprises founder Byju Raveendran and his family members Divya Gokulnath (wife) and Riju Ravindran (brother), can appeal NCLT’s ruling. Raveendran has already approached the Karnataka High Court, which did not admit his petition. He is now set to appeal the ruling in the National Company Law Appellate Tribunal. If he fails to get a favourable ruling from the appellate tribunal, Raveendran could approach the Supreme Court.
Separately, if Raveendran manages to reach an agreement with the BCCI, the insolvency proceedings can be staved off. In September 2023, Coffee Day Enterprises, the parent company of Cafe Coffee Day, avoided CIRP after it agreed to settle its dues with bondholders.
In case of liquidation, what happens to the stakeholders?
According to a Reuters report, Raveendran said in his appeal to the Karnataka High Court that the insolvency process would likely cause vendors who provide critical services to Byju’s for the upkeep of online platforms to declare a default, “leading to a total shutdown of services” and bringing the operation to “a grinding halt”.
Thousands of current and former Byju’s employees, as well as customers, are awaiting payments like pending salaries or refunds for advance payments from the company.
During the CIRP, none of Byju’s assets can be transferred, while all debt and interest will remain frozen under a moratorium.
While there is no clarity on a timeline of when these dues would be cleared, the creditors including employees will enter a long queue of creditors to the company that are to be paid their dues through the insolvency proceedings.
“In case of liquidation, the dues will be cleared in accordance with section 53 (1) of the IBC. That would mean first priority is insolvency and liquidation costs, then workmen dues for 24 months prior to liquidation, then secured creditors who have relinquished their security, employee dues for 12 months prior to liquidation, unsecured financial creditors and then operational creditors, including statutory dues,” said Deep Roy, managing partner at Mumbai-based law firm Equilex.
Equity stakeholders are last on the list.
All the claims of employees prior to the commencement of the CIRP will have to be specifically claimed with the resolution professional.
Sagar Arora, a sales executive from Sonipat, has not yet received his full salary and final payment from February till April when he was laid off. The company allegedly paid only half of his February salary, despite his salary slip indicating the full amount was credited. Arora claimed that he and several other Byju’s employees who were handed over pink slips, tried to reach out to the company but to no avail.
What happens to Byju’s customers?
Lawyers said that during the resolution proceedings, the operations of the company are maintained in status quo, and all customers who have made payments are to be provided the services. However, in absence of those services, customers can claim their dues as operational creditors.
“The company is to be maintained as a going concern during the resolution stage. Accordingly, all customers for whom advances have been taken should be provided with the services during this resolution stage. In case the services are not provided, then the customers will also have a claim as operational creditors,” Roy said.
Operational creditors are one of the last in queue for recovery of dues.
“Operational debts are normally treated as unsecured debts which means that such debts are not backed by any collateral. However, the salaries of the employees and advance payments of the customers are considered priority debts and are paid out before other unsecured debts,” said Sanjay Sethiya, managing partner at Bengaluru-based firm Law Square.
Operations in disarray
Byju’s operations are evidently at a far from ideal stage. Raveendran remains the only shareholder and executive with the knowledge of key company information and operating modules for various businesses — a pale shadow of its past. Besides the BCCI insolvency plea, Byju’s investors are battling with him in court over a rights issue, blocking funds. Byju’s lenders have a similar tale to tell. They and the company have sued each other in US courts. Raveendran, according to people who know him, has dragged this really long but time now is running out and there is very little money left in the company.