Byju's Crisis: Delaware Supreme Court Backs Lenders Over $1.2 Billion Loan Default
The loan facility was availed by Byju's through a credit agreement in November 2021.
The Delaware Supreme Court on Monday upheld a ruling in favour of Byju's lenders represented by Glas Trust LLC, handing a blow to the embattled ed-tech firm.
As a result of the ruling, the Court of Chancery's order that held Byju's to be in default of $1.2 Billion has attained a stamp of approval by Delaware's highest court of appeal.
The loan facility was availed by Byju's through a credit agreement in November 2021. The credit agreement set forth the terms for a loan providing an aggregate principal amount of $1.2 billion to Byju’s.
A syndicate of 37 financial institutions bought the $1.2 billion loan with the condition that in the event of a default, Glas, at the request of the lenders, could act to enforce their rights.
For collateral, Think & Learn Pvt. Ltd.'s Delaware subsidiary, Byju's Alpha pledged 100% of its equity as collateral for the term loans.
In March 2023, Glas delivered a notice of default to Byju's, making it eligible to enforce its remedies in accordance with the credit agreement.
After securing control of Byju's Alpha in its capacity as the sole stockholder, Glas filed a complaint in the Court of Chancery, seeking a declaration that their actions taken by written consent were valid.
The court held a trial in August 2023 and delivered a ruling in favor of Glas in November.
Delivering the verdict, the vice-chancellor agreed with Glas' interpretation of the credit agreement covenants and determined its actions to be valid.
The court said that the willingness of the lenders to patiently wait and forbear on the loans numerous times, even after they had become entitled to sending a default notice, cut against a finding of unclean hands.
On an appeal before the Delaware Supreme Court, Byju's contended that the Court of Chancery's action should have been dismissed in light of a suit pending before a court in New York that was filed by Byju's against Glas.
Dismissing Byju's appeal, the Delaware Supreme Court underscored the fact that Byju's waived its forum selection clause by not arguing it before the Court of Chancery.
Since Byju's failed address this issue at the trial court stage, this prevented the issue from being determined by the trial court.
We find it difficult to see how judicial economy and finality can square with requiring the parties to retry the case, merely because Appellants failed to address an issue which they now claim is vital to this case.Delaware Supreme Court
The top court said that it can only consider a question for the first time on appeal when the interests of justice so require, however, Byju's failed to meet the threshold, the top court said.
Dismissing Byju's appeal, the top court agreed with the trial court's finding that Glas' action to secure control of Byju's Alpha was correct.
In a statement issued on Sept. 24, Byju's has clarified that the Delaware verdict has no bearing on the ongoing legal proceedings in India.
Validity of Glas' enforcement action is still pending before the New York Supreme Court, the edtech said. Glas holds no legal standing in the US, nor does it have a locus standi in Indian proceedings, it said.
Byju's said it strongly contests the inflated and illegal claims made by Glas Trust and maintained that its actions are detrimental to all stakeholders involved.
Edit: Updated with Byju's clarfication
