BYJU’S Faces Crucial EGM – In a high-stakes showdown, the fate of India’s edtech giant BYJU’S and its founders, Byju Raveendran and Divya Gokulnath, hangs in the balance as the company gears up for an Extraordinary General Meeting (EGM) scheduled for Friday. The event is poised to shed light on a series of critical issues that have plagued the company for the past two years, pitting the management, including CEO Byju Raveendran, against a group of key shareholders.
BYJU’S Faces Crucial EGM : A Deep Dive into Key Issues and Investor Concerns
EGM Dynamics and Management’s Response: A day before the EGM, BYJU’S management, facing pressure from a group of shareholders, announced that neither CEO Raveendran nor other board members would attend the EGM, deeming it invalid. However, sources within the investor group assert that the EGM will proceed as planned, with resolutions set for voting.
Investor Concerns and Key Questions: Inc42 has obtained a copy of the notice for the EGM, dated February 1, 2024, highlighting concerns on various fronts, including alleged deteriorating financial and corporate governance conditions.
- Leadership Change: Shareholders are pushing for the removal of CEO Raveendran, co-founder Divya Gokulnath, and board member Riju Ravindran. The investor group cites mismanagement and failures, seeking a change in leadership to prevent further dilution of value.
- Financial Mismanagement Allegations:
- Investors demand answers regarding alleged contraventions mentioned in show cause notices by the Enforcement Directorate (ED) in November 2023.
- Concerns include the company’s failure to resolve issues with Term Loan B (TLB), resulting in an insolvency plea.
- Allegations of misleading shareholders on various financial matters, including delayed audited financials and payments of statutory obligations.
- Value Erosion and Dues Collection Failures:
- Management accused of failing to recover approximately INR 1,400 Cr of billings from an affiliated reseller in Dubai (More Ideas General Trading LLC).
- Questions raised about the management’s failure to enforce the company’s rights against Blackstone entities and Mr. J.C. Chaudhry.
- Investors seek clarity on the prolonged uncertainty around Aakash Institute, for which BYJU’S reportedly paid nearly $1 Bn.
- Concealment of Material Information:
- Allegations of management’s failure to disclose a notice of default from Great Learning in April 2022 and consequences affecting the group’s value.
- Questions raised about the transfer of funds to Camshaft Capital Fund, a move considered suspicious.
- Lack of disclosure regarding potential departures of key management personnel, trading financials, and available capital.
- Breach of Obligations to Shareholders:
- Allegations of deliberate and repeated breaches in reporting information, inspection covenants, and failure to disclose crucial financial details.
- Shareholders seek answers on the lack of information pursuant to inspection rights, observers at board meetings, and limitations on exercising shareholder rights.
- Corporate Governance Lapses:
- Investors demand a performance review process for key figures, including CEO Raveendran, Gokulnath, and Riju Ravindran.
- Seeking status updates on critical matters, including the rights issue, Aakash acquisition terms, and further fundraises.
- Calls for an explanation of steps and measures to improve corporate governance across group companies.
- Board Restructuring and New Leadership:
- Shareholders call for a reconfiguration of the company’s board, including shareholder representation, independent directors, and board committees.
- Requests for the appointment of a chief compliance officer and a senior regulatory affairs official.
- Urgency in appointing new members to the board, including independent directors and shareholder directors.
Legal Battles and Uncertainties: BYJU’S has taken the legal route, moving the Karnataka High Court to invalidate the EGM request. The court granted temporary relief to the Raveendran family, but the EGM is expected to proceed. Any resolutions passed at the EGM cannot be ratified until the next court hearing scheduled for March 13, 2024.
Potential Impact: The outcome of the EGM could reshape BYJU’S significantly, with possible changes in leadership, board structure, and corporate governance. As one of the pillars of India’s startup and tech narrative, any transformation in BYJU’S could send shockwaves across the entire startup ecosystem.
Stay tuned for further updates on this evolving situation as BYJU’S navigates through these challenging times.
Frequently Asked Questions (FAQs) about BYJU’S EGM and Investor Concerns:
Q1: What is the significance of the EGM scheduled for BYJU’S, and why is it considered crucial? A1: The Extraordinary General Meeting (EGM) is critical for BYJU’S as it is expected to address a series of key issues and concerns raised by a group of shareholders. The fate of the company’s founders and management hangs in the balance, making this EGM a pivotal event for the future of BYJU’S.
Q2: Why is BYJU’S management, including CEO Byju Raveendran, not attending the EGM? A2: The management, facing pressure from a group of shareholders, has declared that neither CEO Byju Raveendran nor other board members will attend the EGM, considering it invalid. However, sources within the investor group assert that the EGM will proceed as planned.
Q3: What are the key concerns raised by the group of shareholders ahead of the EGM? A3: Shareholders have raised several concerns, including the potential removal of CEO Raveendran, allegations of financial mismanagement, value erosion, failures in dues collection, and corporate governance lapses. The EGM is expected to address these issues and determine the company’s future direction.
Q4: What are the specific allegations of financial mismanagement against BYJU’S? A4: Allegations include contraventions mentioned in show cause notices by the Enforcement Directorate, issues with Term Loan B (TLB) leading to insolvency pleas, misleading shareholders about financial matters, delayed audited financials, and non-payment of statutory obligations, among others.
Q5: Why are investors concerned about value erosion and failures in dues collection at BYJU’S? A5: Investors are alarmed by the management’s alleged failure to recover approximately INR 1,400 Cr of billings, especially given the company’s dire need for funding. Concerns also include the company’s handling of affiliated reseller More Ideas and the uncertainty surrounding Aakash Institute.
Q6: What legal actions has BYJU’S taken in response to the EGM? A6: BYJU’S moved the Karnataka High Court, seeking to invalidate the EGM request, citing procedural issues under the Companies Act, 2013. The court granted temporary relief, but any resolutions passed at the EGM cannot be ratified until the next court hearing scheduled for March 13, 2024.
Q7: How could the outcome of the EGM reshape BYJU’S, and what impact might it have on the startup ecosystem? A7: The outcome of the EGM could result in significant changes in BYJU’S leadership, board structure, and corporate governance. As a prominent player in India’s startup and tech narrative, any transformation in BYJU’S could send shockwaves across the entire startup ecosystem.
Q8: What is the timeline for the next steps following the EGM, considering the legal proceedings? A8: The next court hearing regarding the EGM is scheduled for March 13, 2024. Until then, any resolutions passed at the EGM cannot be ratified. The legal proceedings will play a crucial role in determining the course of action for BYJU’S in the coming weeks.
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