Troubling times for Byju’s:Corporate governance concerns mount as auditor resigns
In a worrying development, BDO, the auditor of Indian ed-tech startup Byju’s, has resigned with immediate effect. This marks the second auditor departure from the troubled startup in about a year, further fueling concerns about its financial health and governance.The resignation letter from BDO subsidiary MSKA highlights multiple issues, including significant delays in financial reporting, insufficient management support, and concerns about the company’s ability to recoup significant dues from Dubai-based entities.
Storm brewing for India’s once-reputable startups
Scathing resignation of auditor
The auditor’s exit comes at a time when Byju, once India’s highest-cap startup with a market capitalization of $22 billion, is mired in a series of crises. In a sternly worded resignation letter, MSKA disclosed that it had filed Form ADT – 4 indicating possible fraud or illegal activities within the company. The letter also highlighted concerns about various ongoing litigation against Byju’s and its board, including the initiation of liquidation proceedings by the lending institution and allegations of oppression and mismanagement of minority shareholders.MSKA pointed out that Byju had failed to share key information with the audit team, such as notices of interim general meetings and insolvency proceedings. The auditor’s departure exacerbates the growing challenges facing the edtech company. The company’s valuation has plummeted due to missed financial deadlines, revenue shortfalls and conflicts with investors.
Byju’s rebuttal and allegations
In response, a Byju spokesperson claimed that BDO’s demands on the company needed to “cross ethical and legal boundaries”. The spokesperson further claimed that “the real reason for BDO’s resignation is that the BYJU company refused to retrospectively report on it, and BDO has reached the point of recommending a company that may be promoting such illegal activities.” Byju stated that there existed multiple recorded phone calls in which “BDO representatives explicitly recommended backdating these documents, but Byju refused to do so.”
Ongoing governance issues
This is not the first time Byju’s has faced auditor departures and governance issues. Last year, Byju’s previous auditor, Deloitte, and key board members of the startup resigned, citing governance issues at the company. The ed-tech company’s troubles have escalated in recent months, with India’s Supreme Court recently setting aside a court ruling that stayed bankruptcy proceedings against the company.
Ressure from creditors and investors
U.S. creditors have demanded $1 billion in recovery from Byju’s, which has further exacerbated the company’s financial woes. Top investors, including Prosus and Peak XV, had previously accused the company of governance problems and sought legal action to remove founder Byju Raveendran.
Tarnished reputation, uncertain future
The auditor’s resignation and the mounting challenges faced by Byju’s have dealt a major blow to the reputation of the startup, which was once hailed as a shining example of India’s ed-tech success. As the company grapples with financial, legal and governance issues, its future remains uncertain, raising concerns about the broader implications for India’s startup ecosystem.