Mint Explainer: Why Byju’s creditors drag professional solution to court

On September 19, Ernst & Young restructuring firm also resigned as Srivastava’s consultant, days after MSKA & Associates (BDO) resigned as the company’s auditor.

Ahead of the hearings in Aditya Birla Finance and Glas Trust on September 24 and 25 respectively, Mint Explains how disagreements between creditors and Byju’s RP will affect the resolution process.

What do creditors want?

Glas Trust Llc is seeking restoration of its status in the Committee of Creditors (CoC) after Srivastava excluded it from the committee. “Srivastava’s conduct is unprecedented and completely illegal as no IRP in the history of the Indian Bankruptcy Code (IBC) has ever attempted to unlawfully deprive financial creditors of such massive claims, amounting to over $1.35 billion, without any justifiable reason and Doing so ensures his appointment as permanent RP,” it said in a letter dated September 3.

Glas Trust shifted the NCLT Bangalore seat on September 4. However, it didn’t get any relief. The case then moved to the Supreme Court.

Glas Trust had earlier moved the Supreme Court challenging the settlement between Byju’s and its operational creditor Board of Control for Cricket in India (BCCI), claiming that as a financial creditor, its dues should be settled before the cricket board.

Byju’s-BCCI case revolves around a sponsorship dispute. On June 16, NCLT initiated insolvency proceedings against Byju’s on behalf of BCCI and suspended its board of directors. Settlement reached on August 2, with Byju paying $158 crore through co-founder Riju Raveendran. However, the Supreme Court intervened on August 14, staying the settlement and directing that the amount be placed in escrow.

Aditya Birla Finance accuses Srivastava of fraud. The company has approached the National Company Law Tribunal (NCLT) accusing him of wrongly classifying the lenders as operational creditors instead of financial creditors.

Since financial creditors have priority over operational creditors when it comes to claiming assets, this misclassification could have a significant impact on Aditya Birla Finance’s claim on Byju’s assets during the insolvency process.

Is RP’s approach effective?

The RP is responsible for validating the claims and forming the CoC. In Byju’s case, Srivastava verified and admitted the claims of Glas Trust. But later it was removed from the list.

He reportedly believed Glas Trust failed to represent at least 51% of lenders during the claims process and failed to provide sufficient evidence to prove otherwise.

As a result, Glas Trust, which previously accounted for approximately 99% of the claim, was excluded from the CoC.

Experts assert that immigration authorities have the authority to include or exclude any claimant from these processes. “It is the RP that constitutes the CoC and any lender aggrieved by its exclusion or allocated voting share can approach the NCLT,” said Smiti Tewari, partner at Khaitan Legal Associates.

Inquiries sent to Glas Trust, Srivastava, Aditya Birla Finance and EY were not responded to at the time of publication.

How have the dynamics changed?

Byju Raveendran – Common Enemy, no longer at the helm – The alliance between lenders and investors appears to be fraying, threatening to pit them against each other.

Ketan Mukhija, partner at Burgeon Law, said: “This exclusion not only undermines their (Glas Trust’s) claims but also changes the balance of power in the CoC.”

Before exclusions, Glas Trust held the largest share of claims, accounting for about 99% of total debt. “From a corporate insolvency resolution process (CIRP) perspective, the interests of lenders and investors are not as aligned as if one party with larger voting rights were to run the resolution process,” Tewari said.

The elimination of Glas Trust’s claims and the misclassification of Aditya Birla Finance paves the way for investors to take a leading role in Byju’s insolvency proceedings.

How will it affect the process?

The Supreme Court’s ruling on Glas Trust and BCCI’s plea will provide clarification on the matter. However, experts say the resolution of the dispute depends on a court ruling and could prolong the bankruptcy process.

“If a dispute arises and the decision is challenged, the timeline will be determined by the time it takes for the court to decide the issue,” Tewari said. However, the case is unlikely to affect ongoing proceedings and will continue as is.

“The allegations against RP will not affect the ongoing proceedings pending a final order on whether RP can proceed with CIRP,” said attorney Krushi N. Barfiwala of Parinam Law Associates.

What happens next?

The case is currently before the Supreme Court and the bankruptcy proceedings are ongoing without interruption. “Unless the Supreme Court issues a directive to stay the implementation of CIRP, the process will continue,” Tewari said. The next hearing date is September 25.

Solutions will be proposed once a decision is made to exclude or include US lenders in the CoC and initiate bankruptcy proceedings.

“The plans will be evaluated as per the provisions of the IBC. The plan has been put to the vote. In fact, the application submitted poses a challenge to the successful resolution plan. Once all procedures are completed, the resolution plan will be successfully implemented,” Bafewala explain.

The lender will then receive payment according to the schedule outlined in the approved resolution plan. However, she added that the timeline could change if the resolution plan fails and liquidation ensues.