Inside Byju’s Bankruptcy: Impact, Recovery, and Future Prospects

Byju’s, a household name in online education across India, has recently been in the spotlight for reasons quite different from its usual achievements. Once a leading star in the EdTech industry, the company is now navigating insolvency proceedings. This development might be unsettling for students, employees, and anyone who has followed Byju’s journey.

Once valued at $22 billion, Byju’s is entering insolvency. Let’s delve into what this means and address the important questions.

What Exactly Happened?

The National Company Law Tribunal (NCLT) initiated insolvency proceedings against Byju’s parent company, Think & Learn Pvt Ltd, due to unpaid dues of ₹158 crore owed to the Board of Control for Cricket in India (BCCI). Byju’s had previously sponsored the Indian cricket team.

While the company acknowledged the debt and made partial payments, it wasn’t enough to settle the entire amount. This triggered the BCCI to file a petition with the NCLT, leading to the current situation.

A Look Into The Past

The decline of ed-tech startups started in 2021 when they reported significant losses for FY21. Overhiring was a major issue. In 2022, many ed-tech startups laid off employees, following the broader trend of layoffs across startups. 

According to Fintrackr, funding for edtech startups dropped sharply from $5.8 billion in 2021 to $2 billion in 2022 until August 15. Only two deals were made in the tech sector in the first two weeks of August. It further dropped to $712 million in 2023.

Byju’s and Unacademy reportedly laid off over 1,000 employees each, though both claimed the numbers were below 500 and 600, respectively. Byju ”s-owned Toppr fired 350 employees, and WhiteHat Jr. laid off 300, with an additional mass resignation of over 1,000 staff. 

What Does Bankruptcy Mean for Byju’s?

Byju Raveendran, the company’s founder, will no longer run Byju’s. Instead, the Interim Resolution Professional (IRP) will manage the company’s operations until the lenders form a Committee of Creditors (CoC).

The CoC will manage Byju’s through the IRP for up to 330 days. If they can sell the company to a buyer through a bidding process, Byju’s could be revived. The National Company Law Tribunal (NCLT) will order its liquidation if not.

What About Byju’s Employees?

Ex-employees with outstanding dues might wonder about getting paid. Unfortunately, recovering dues can be a complex process in an insolvency situation. The resolution professional will prioritize claims based on a specific order. 

First priority goes to costs incurred by the resolution professional or liquidator, followed by workers’s dues for the last 24 months and secured creditors’ debts. Employee dues for the last 12 months come next, followed by unsecured creditors’ financial debts. Therefore, employee dues are given high priority under the IBC.

Byju laid off thousands of employees due to declining revenues, with 160 to 200 ex-employees claiming around Rs 4.5 crore in unpaid settlements. 

Here are some steps ex-employees can take

• Gather Proof: Ensure you have all your employment documents, such as appointment letters, salary slips, and proof of any unpaid dues.
• File a Claim: Creditors will have an opportunity to file claims as the insolvency process progresses. Make sure to submit yours within the stipulated timeframe.
• Stay Informed: Keep an eye on official updates from Byju or the resolution professional regarding the claims process. You can also consult a lawyer specializing in insolvency matters for further guidance.

What Does an Out-Court Settlement Mean

An out-of-court settlement between Byju’s and BCCI wouldn’t impact other creditors automatically. Here’s why:

• Insolvency for All Creditors: Entering insolvency proceedings with BCCI means Byju is now dealing with all its creditors, not just BCCI.
• Fair Distribution: BCCI does not receive special treatment. A committee will decide how to distribute funds among creditors based on an approved plan.
• Priority for Costs: Initial insolvency process costs get paid first, followed by creditors.

What happens to Byju’s tax dues during its bankruptcy process?

As Byju entered into insolvency resolution, Moneycontrol reported that current and former employees faced challenges with their income tax filings. The company has not remitted tax deducted at source (TDS) to the government since July of the previous year.

This non-payment now makes Byju liable to the government for these TDS dues. The issue remains whether the former management will be held responsible or if the newly appointed resolution professional and Committee of Creditors (CoC) overseeing the company will assume responsibility.

If the government seeks to recover these dues from the resolution professional or CoC, it must lodge its claims during the insolvency proceedings due to the litigation moratorium. However, government entities cannot participate in the CoC, which exclusively comprises financial creditors.

What Happens to Byju’s Students?

Many are concerned about this. The good news is that the immediate impact on students will likely be minimal. Byju’s courses are likely to continue functioning in the short term. However, the long-term situation depends on the outcome of the insolvency proceedings. In a revival scenario, students might not face significant disruptions.

However, if the company liquidates, access to courses and ongoing support could be affected. It’s important to stay updated on any official announcements from Byju regarding their plans for students.

The Road Ahead

Byju’s insolvency is a developing story. The company’s next move, the outcome of the NCLT order, and the final resolution plan will all significantly impact the company. Here’s what to watch out for:

• News on NCLAT Appeal: Will Byju’s challenge the insolvency order, or will they focus on restructuring within the CIRP framework?
• Creditor Committee Decisions: The committee’s decisions will determine Byju’s path forward. Will they focus on reviving the company, selling assets, or finding a new owner?
• Impact on the Edtech Landscape: How will this situation affect other players in the Edtech industry?

What Lies Ahead For The Indian EdTech Scenario

Despite the challenges, there is a bright spot:: online education and lifelong learning market alone is projected to be worth $5 billion by 2025, according to a Redseer report. With parents placing a high value on education, new unicorns will emerge as companies prove their market mastery and benefit students. 

The broader domestic market could hit $30 billion by 2030, with many Indian unicorns eyeing global expansion. The 100% FDI permission is an open invitation to think big. While the pandemic boosted edtech in India, the reopening of schools and a funding slowdown has posed challenges for startups in this sector.

Keeping it Simple

Byju’s situation is complex, but hopefully, this explanation provides a clearer picture. Remember, this is an ongoing story; we’ll have to wait and see how it unfolds. In the meantime, the tech industry will likely undergo a period of adjustment, but the core value proposition of online learning remains strong.

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