Federal Court of Australia

Jones (Administrator) v Realtek Semiconductor Corporation in the matter of Nuheara Limited (administrators appointed) (No 1) [2025] FCA 267

ORDERS

A.    UPON THE UNDERTAKING of the Plaintiffs by their counsel to remit the sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000) to the Defendant forthwith upon Completion under the Business Sale and Purchase Agreement that is Annexure A to these Orders (Agreement)

THE COURT ORDERS THAT:

1.    In the event a proposed deed of company arrangement, annexed as Annexure AJF-3 to the affidavit of Andrew James Filing sworn 20 February 2025, is accepted at the second meeting of creditors of Nuheara Limited (Administrators Appointed) (Company), to be held on 25 February 2025, the Plaintiffs as administrators have leave pursuant to s 442C of the Corporations Act 2001 (Cth) (Act) to dispose of the Assets and the Business (as those terms are defined in the Agreement) to give effect to such deed of company arrangement.

2.    Pursuant to s 447A of the Act, Part 5.3A of the Act is to operate in relation to the Company as if s 442C(7)(b) of the Act referred to “property of the company or property used by or in the possession of the company is subject to a security interest”.

3.    Time for service of this Originating Process and the Affidavit of Martin Bruce Jones sworn 17 February 2025 be abridged to 17 February 2025.

4.    Costs reserved.

Note:  Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

ORDERS

THE COURT ORDERS THAT:

1.    The following parties be added as second and third plaintiffs respectively:

(a)    Martin Bruce Jones, Matthew David Woods and Clint Peter Joseph in their capacity as joint and several administrators of Nuheara IP Pty Ltd (administrators appointed) ACN 605 704 096 (Nuheara IP); and

(b)    Martin Bruce Jones, Matthew David Woods and Clint Peter Joseph in their capacity as joint and several administrators of Terrace Gold Pty Ltd (administrators appointed) ACN 072 608 952 (Terrace Gold).

5.    Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act), Part 5.3A of the Act operates in relation to the administration of Nuheara Limited (Administrators Appointed) ACN 125 167 133, Nuheara IP Pty Ltd (Administrators Appointed) ACN 605 704 096 and Terrace Gold Pty Ltd (Administrators Appointed) ACN 072 608 952 (together, the Companies) as if:

(a)    Rule 75-140(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Rules) has the words ‘that is more than 45 business days after the first day on which the original meeting was held’, omitted and includes instead of the omitted words the words ‘later than 28 February 2025’;

(b)    Part 5.3A of the Act permits an adjournment of the meeting convened under s 439A of the Act in relation to the Companies to a day not later than 28 February 2025, despite the operation of s 75-140(3) of the Rules;

(c)    The requirement to hold a meeting of creditors of the Companies within the convening period specified in s 439A(2) of the Act will be satisfied by holding the adjourned meetings no later than, but at any time before and up to, 28 February 2025;

(d)    The requirements of s 439A(3) and (4) of the Act are satisfied by providing a copy of these orders to the creditors of the Companies in a circular to creditors stating the date and time of the adjourned meetings no later than 24 hours before the time stated in that circular; and

provided that the requirements of s 75-140 of the Rules are otherwise complied with in respect of such meeting.

6.    Realtek Semiconductor Corporation (Realtek) shall by 5pm AWST on 26 February 2025 pay into a trust account nominated by the Plaintiffs the amount of $474,733 plus GST in the sum of $47,473.30.

7.    The Plaintiffs shall forthwith serve upon Realtek a copy of the Interlocutory Process filed on 25 February 2025, the Affidavit of Martin Bruce Jones sworn on 25 February 2025, and these orders once entered.

8.    Realtek has leave to apply to vary these orders upon short notice to the Plaintiffs, such notice to be given as soon as practicable following the service of these orders upon Realtek.

9.    The Plaintiffs have leave to apply at short notice to vary these orders upon notice to Realtek, such notice to be given as soon as practicable.

10.    The Plaintiffs’ costs of this application are costs properly incurred in the administration of the Companies, and be paid out of the assets of the Companies.

Note:  Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

REASONS FOR JUDGMENT

O’SULLIVAN J:

1    This matter is related to the decision of Feutrill J in Realtek Semiconductor Corporation v Jones (Administrator) [2024] FCA 1321.

2    That matter was an application filed by Realtek Semiconductor Corporation seeking orders under s 588FM of the Corporations Act 2001 (Cth) to fix the latest time to register a security interest it has over the Property of Nuheara Limited (ACN 125 167 133) (Administrators Appointed) on the Personal Property Securities Register (PPSR) to 15 March 2024.  Justice Feutrill granted Realtek’s application on 22 October 2024.

Urgent application

3    On 18 February 2025, the plaintiffs, Martin Bruce Jones, Matthew David Woods and Clint Peter Joseph, in their capacity as joint and several Administrators of Nuheara, filed an urgent application seeking the leave of the Court, pursuant to s 442C(2) of the Corporations Act (Cth) 2001, to dispose of Property of Nuheara that is subject to a security interest.

4    I heard the application on 21 February 2025 at which time I made orders pursuant to s 442C(2).  I indicated that I would provide reasons for those orders.  These are those reasons.

5    The application was urgent because a second meeting of creditors was due to take place on 25 February 2025.  At that meeting, the plaintiffs intended to recommend to the creditors of Nuheara a proposed Deed of Company Arrangement (DoCA Proposal) put forward by a group of investors (Syndicate) using a special purpose vehicle (Orecchio Pty Ltd), however that was dependent upon the Administrators being able to sell certain Property of Nuheara.  The Property sought to be disposed of includes property the subject of the security interest registered by Realtek following the judgment of Feutrill J in Realtek Semiconductor.  Realtek had refused to consent to the sale of that Property.

6    The Property comprises:

(i)    All intellectual property that is property of Nuheara or are used by or in the possession of Nuheara including, without limitation, the patents described in a Schedule attached to the originating process;

(ii)    All of the shares in Nuheara IP Limited and Nuheara;

(iii)    All domain names that are property of Nuheara or are used by or in the possession of Nuheara;

(iv)    All software that is property of Nuheara or is used by or in the possession of Nuheara, including any software licences;

(v)    All fixed assets, including plant and equipment;

(vi)    All inventory; and

(vii)    All contracts with suppliers and customers, and customer databases,

and any other property of Nuheara, required to give effect to a Deed of Company Arrangement (DoCA) or an Asset Sale Agreement entered into under a DoCA.

7    The plaintiffs claim that if they cannot dispose of the Property, there will be no DoCA Proposal for creditors to vote on, and the only available course for the creditors is that Nuheara, together with two wholly owned subsidiaries, Nuheara IP Pty Ltd ACN 605 704 096 and Terrace Gold Pty Ltd ACN 072 608 952, of which the plaintiffs are also Administrators, be wound up.  In that event, the Administrators consider that the realisation of the Property in a liquidation (including the sale of the Nuheara business which will not be sold as a going concern) will not realise a value anywhere near the amount being offered in the DoCA Proposal.

8    Under those circumstances, the plaintiffs seek leave of the Court, pursuant to s 442C(2)(c) of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations) in Schedule 2 to the Act, to sell the assets the subject of Realtek’s security interest.

9    The plaintiffs also sought orders, pursuant to s 447A of the Act, that Part 5.3A of the Act is to operate in relation to Nuheara as if s 442C(7)(b) of the Act referred to “property of the company or property used by or in the possession of the company subject to a security interest”.

Background

10    The plaintiffs were appointed as the Administrators of Nuheara, Nuheara IP and Terrace Gold, on 7 August 2024.

11    Realtek, a company registered in Taiwan but with worldwide operations, manufactures integrated circuits (also known as ICs or Microchips).  It supplied Microchips to Nuheara as part of Nuheara’s research and development of headphones and other products.

12    Over the majority of 2024, Nuheara (and after administration, the Administrators) and Realtek negotiated in relation to a supply agreement for Realtek to supply Microchips to Nuheara.  No agreement was reached.

13    Realtek holds approximately 19% of the issued capital in Nuheara.  Under a Convertible Notes Subscription Agreement, dated 7 September 2022, Nuheara granted the security interest to Realtek over all of its present and future assets.  That security interest was registered on the PPSR on 15 March 2024 in accordance with Feutrill J’s order made 22 October 2024.

14    Nuheara is indebted to Realtek pursuant to the Agreement in the amount of $2,500,000 plus interest.

15    The most valuable assets comprising part of the Property are certain patents, trademarks and designs, which in general terms are held by Nuheara IP.

The Property

16    The intellectual property is the principal asset which the Syndicate wishes to acquire as part of the DoCA Proposal, with the balance of the Property having little or no value without that intellectual property.

17    The intellectual property comprises Patent Rights, Trade Mark Rights, Design Rights and what the plaintiffs describe as Other Rights.

18    As to those various rights:

(a)    The intellectual property is the subject of the patents granted to and registered, or applied for, by Nuheara IP in Australia and the United States and with the World Intellectual Property Organisation (WIPO).  The patents are used by Nuheara under license from Nuheara IP;

(b)    There are also corresponding patents granted as well as the right to obtain patents; and

(c)    It also includes all related rights under the Patents Act 1990 (Cth) or otherwise under Australian Law, United States Law, or the Law of any other place or International Law.

19    The Trade Mark Rights comprise:

(a)    Registrations in Australia and other countries held by Nuheara IP and used by Nuheara under license; and

(b)    All related rights under the Trade Marks Act 1995 (Cth) or otherwise under Australian Law, United States Law, or the Law of any other place or International Law.

20    The Design Rights comprise:

(a)    The intellectual property the subject of the design registrations in Australia, the United States and China held by Nuheara IP and used by Nuheara under license; and

(b)    All related rights under the Designs Act 2003 (Cth), United States Law, Chinese Law, or the Law of any other place or International Law.

21    The Other Rights comprise any other intellectual property owned, used by or in the possession of Nuheara which cannot be registered, or are not yet in registrable form.

22    Although Nuheara IP licenses its intellectual property to Nuheara, Nuheara also owns intellectual property arising out of the work done by its employees.

23    Nuheara owns other property apart from its own intellectual property comprising Shares; Domain names that are property of Nuheara, Software that is property of Nuheara, fixed assets, including plant and equipment, inventory and contracts necessary to continue manufacturing and distributing Nuheara’s products.

24    On 24 August 2024, the Administrators appointed Azure Capital, a corporate advisory firm, in an attempt to sell some of the Property, principally the intellectual property, or recapitalise the companies.  Azure Capital approached some 25 parties, of which seven parties signed non-disclosure agreements with only two of those progressing their negotiations.  Of those two, only one party expressed an interest in purchasing Nuheara subject to an agreement that the Administrators could not guarantee.  One other party made a non-binding indicative proposal to acquire patents, however that did not progress to a binding offer.

25    In late 2024, Realtek had expressed an interest in a credit bid for the ‘active’ patents only, however that did not progress further.

26    On 17 February 2025, the Administrators received the DoCA Proposal from the Syndicate.  In summary, the DoCA proposed included, amongst other terms, the following:

(a)    Orecchio, as a special purpose vehicle, will purchase the business assets of Nuheara for $500,000, which is to be paid to Realtek.  The DoCA is conditional upon Realtek’s security being discharged in order to facilitate the transaction;

(b)    Orecchio will also provide the funding for:

(i)    The expenses incurred by the Administrators in the amount of $912,115;

(ii)    $1,392,754 for the repayment of the post appointment administration funding;

(iii)    $432,832 for the payment of unsecured creditors, being capped at 10 cents per dollar; and

(iv)    Employment entitlements in the amount of $147,681.

(c)    All of Nuheara’s current employees will be employed by Orecchio or otherwise will receive payment of all termination and accrued employee entitlements in full;

(d)    Realtek would be an excluded creditor, for the purpose of the Creditor’s Trust;

(e)    Unsecured creditors to receive a dividend of up to 10c/$; and

(f)    Upon implementation, the corporate shells of each remaining group entities would be wound up by 30 June 2025 and deregistered by ASIC thereafter.

27    In the absence of any other proposal, the Administrators consider the Syndicate’s DoCA Proposal as the only viable option remaining for the sale of Nuheara’s business as a going concern.

28    The Administrators have formed the view that the DoCA Proposal, insofar as it proposes a payment of $500,000 to Realtek out of the proceeds of sale of the Property with that sum being quarantined for Realtek, will generate the best return available for the Property.

29    The plaintiffs proferred an undertaking to remit the sum of $500,000 to Realtek forthwith upon the completion of the transactions.

30    A key part of the DoCA Proposal is for Realtek to consent to the release of its security interest over the Property, so that the sale could proceed in the event the creditors accept the Syndicate DoCA Proposal, however it has refused to do so.

31    If the Administrators are not able to dispose of the Property pursuant to the DoCA Proposal, given the attempts to sell the Property undertaken to this point, it is unlikely any sale will realise $500,000.  The consequence of that scenario is for the companies to be put into liquidation, in which case the Property will be unable to be sold at any value near the amount proposed to be paid under the DoCA Proposal.

Legislation

32    Insofar as is relevant, s 442C provides:

442C When administrator may dispose of encumbered property

(1)    The administrator of a company under administration or of a deed of company arrangement must not dispose of:

(a)    property of the company that is subject to a security interest; or

(b)    property (other than PPSA retention of title property) that is used or occupied by, or is in the possession of, the company but of which someone else is the owner or lessor.

Note: PPSA retention of title property is subject to a PPSA security interest, and so is covered by paragraph (a) (see definition of PPSA retention of title property in section 51F).

(2)    Subsection (1) does not prevent a disposal:

(a)    in the ordinary course of the company’s business; or

(b)    with the written consent of the secured party, owner or lessor, as the case may be; or

(c)    with the leave of the Court.

(3)    The Court may only give leave under paragraph (2)(c) if satisfied that arrangements have been made to protect adequately the interests of the secured party, owner or lessor, as the case may be.

…

(7)    If:

(a)    a company is under administration or is subject to a deed of company arrangement; and

(b)    property of the company is subject to a security interest; and

(c)    the administrator disposes of the property;

the disposal extinguishes the security interest.

…

33    Section 447A of the Act provides:

447A General power to make orders

(1)    The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2)    For example, if the Court is satisfied that the administration of a company should end:

(a)    because the company is solvent; or

(b)    because provisions of this Part are being abused; or

(c)    for some other reason;

the Court may order under subsection (1) that the administration is to end.

(3)    An order may be made subject to conditions.

(4)    An order may be made on the application of:

(a)    the company; or

(b)    a creditor of the company; or

(c)    in the case of a company under administration—the administrator of the company; or

(d)    in the case of a company that has executed a deed of company arrangement—the deed’s administrator; or

(e)    ASIC; or

(f)    any other interested person.

Principles

34    Both parties relied on RE Holdco Pty Limited (Administrator Appointed) (ACN 612 592 471) & Ors [2020] FCA 666; (2020) 145 ACSR 243 (O’Bryan J), at [44]-[51]:

44 A number of matters can be noted about section 442C.

45 First, the section operates to limit the powers of an administrator to dispose of property of the company under administration that is subject to a security interest or property that is used or occupied by, or is in the possession of, the company under administration but of which someone else is the owner or lessor (other than PPSA retention of title property).

46 Second, the section gives the Court power, by the grant of leave under s 442C(2)(c), to authorise an administrator to dispose of such property.  That power involves a significant intrusion on third party security interests and property rights, authorising an administrator to dispose of property that is owned by, or encumbered in favour of, a third party.  …

47 Third, the Court’s power to grant such leave is subject to the condition that the Court must be satisfied that arrangements have been made to protect adequately the interests of the secured party, owner or lessor, as the case may be.  The administrator bears the onus of establishing that condition: Re Le Meilleur Pty Ltd (2011) 256 FLR 240 at [365].  Arrangements “to protect adequately the interests of the secured party, owner or lessor” would ordinarily contemplate arrangements seeking to obtain the best available return for the property being disposed of and the payment of such amounts to the security interest holder, owner or lessor in a manner that is consistent with the principles found in Part 5.3A of the Act, recognising the prior interests of the security interest holder, owner or lessor as the case may be.  If that cannot be achieved, the Court may not be satisfied that the condition stated in s 442C(3) can be fulfilled.  …

48 Fourth, if the Court is satisfied that arrangements have been made to protect adequately the interests of the secured party, owner or lessor, the Court’s discretion under s 442C(2)(c) is otherwise unconstrained.  However, the discretionary power must be exercised judicially by reference to considerations relevant to its exercise, particularly the objects of Part 5.3A.  In that regard, s 435A provides that:

The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a)    maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b)    if it is not possible for the company or its business to continue in existence—results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

49 Reflecting the objects of Part 5.3A, in Mentha v GE Capital Ltd (1997) 27 ACSR 696, Finkelstein J considered that the Court should also consider whether the disposition will prejudice the interests of other creditors or the interests of the company under administration, while recognising that the occasion for such prejudice will not often arise in the case of the disposition of secured property (at 700-701).

50 Mr Austin QC placed reliance on statements of Lehane J in Hamilton and Fiorentino as Administrators of Kisoro Pty Ltd v National Australia Bank Ltd (1996) 66 FCR 12 (Kisoro) at 32, in respect of a similarly worded power conferred on the Court under  s 444F(3) of the Act. In Kisoro, Lehane J approved the following principles to guide the exercise of the Court’s discretion: a chargee should be permitted to exercise proprietary rights where to do so would not impede the achievement of the purposes for which the administration was commenced; in other cases, the legitimate interests of the chargee must be balanced against the legitimate interests of the other creditors of the company; and, in carrying out the balancing exercise, great weight must be given to the proprietary interests of the chargee and, so far as possible, the administration procedure should not be used to prejudice those who were secured creditors when administration commenced in lieu of liquidation.

51 While those statements of principle have relevance to the exercise of the Court’s discretion under s 442C(2)(c), their expression in Kisoro derives from the specific statutory language and context of s 444F, which differs from s 442C(2)(c).  In particular, s 444F applies where a company has executed a deed of company arrangement and a secured creditor of the company wishes to realise or deal with its security interest, or the owner or lessor of property that is used or occupied by, or is in the possession of, the company wishes to take possession of or recover the property.  Under s 444F, the Court may order the secured creditor or owner or lessor of property not to so act if satisfied that so acting would have a material adverse effect on achieving the purposes of the deed and, having regard to the terms of the deed, the terms of the Court’s order and any other relevant matter, the interests of the secured creditor, owner or lessor will be adequately protected.  Thus, the Court’s power under s 444F is to restrain a secured creditor from exercising its security and a property owner from taking possession of or recovering its property in circumstances where a deed of company arrangement has been entered into. The section stipulates that the Court may only restrain the secured creditor or property owner to prevent a material adverse effect on the purposes of the deed of company arrangement. The power in s 442C(2)(c) is more broadly framed. If the Court is satisfied of the condition in s 442C(3), the Court’s discretion is enlivened and is to be exercised having regard to the objects of Part 5.3A more broadly.

(emphasis added)

The parties’ submissions and consideration

35    The plaintiffs’ submit that the DoCA Proposal is the best outcome for Nuheara’s business resulting in the continued operation of the business, as opposed to liquidation.  They submit it will provide a better outcome for the creditors, including the provision of $500,000 to Realtek, which would otherwise likely receive nothing.  It will also result in some employees of Nuheara retaining their employment, and whilst others will have their employment terminated, they will receive their benefits in full.  Any unsecured non-priority creditors will receive a dividend of up to 10 cents in the dollar, compared to the alternative of nothing should the companies be placed in liquidation.

36    The Administrators have not obtained an independent third-party valuation for the Property because a substantial portion of it is highly specialised and obtaining a valuation would be costly.  In view of the results from Azure Capital’s attempts to sell the Property, the Administrators did not consider it to be an appropriate use of the limited funds available to obtain a valuation.

37    Realtek submits that the Court should find that the plaintiffs have failed to satisfy it that “arrangements have been made to protect adequately the interests of the secured party, owner or lessor, as the case may be” and that the Court should not exercise its discretion in allowing the plaintiffs to dispose of Nuheara’s property.

38    Realtek submits that the plaintiffs’ failure and reasons for not obtaining an independent third-party valuation for the Property is inadequate, and their reason for not doing so as being due to the high cost involved as a consequence of the highly specialised nature of the Property, should not be accepted.  It submits that as the plaintiffs failed to obtain quotes, the Court cannot be satisfied of the plaintiffs’ contention.  Further, without any supporting evidence, such as quotes, the Court should not find that the offer from Orecchio represents the best return for Nuheara’s property.

39    I do not accept that submission.  When pressed during argument, counsel for Realtek could not explain why Realtek was unable to provide its own assessment of value for the intellectual property, even on an informal basis.  It defies logic that Realtek did not have any type of assessment of value or a view of any type, particularly since it has had a security interest since 2022, albeit registered in 2024.  The criticism of the Administrators is ill-founded.

40    Realtek submits that there is not sufficient evidence as to Orecchio’s financial capacity and therefore ability to fund the DoCA Proposal, particularly quarantining $500,000 for Realtek.  Realtek contends that an undertaking will not protect its interests after it has discharged its security in Nuheara.

41    I do not accept that submission.  There is no suggestion that the Syndicate will not provide the required funds to Orecchio, and even if that be the case, the consequence is that the DoCA, if accepted, will not proceed.

42    Realtek submits that the plaintiffs, in fixing the value of the Property at $500,000 for the purchase, reflects the fact that Orecchio does not require Realtek to enter into a supply agreement for Microchips.  It submits that there is an implication that the intellectual property of Nuheara is more valuable if the purchaser has a supply agreement with Realtek. Realtek continues that in a liquidation, it has a possible opportunity to enter into a supply agreement with a purchaser thereby increasing the value of the Property.

43    Much of that submission is speculation.  Nonetheless, I accept that the value of the Property, and in particular the value of the business as a going concern, will likely increase in the event there is a supply agreement between Realtek and Nuheara.

44    On the point of a supply agreement, there were negotiations between Realtek and the Administrators in relation to such an agreement, however ultimately no agreement was reached.  There is no suggestion the Administrators refused to enter into such an agreement.

45    It does not sit well for Realtek to submit the benefits of a supply agreement when it was within its power to enter into such an agreement.  Under those circumstances, the contention that the value of the intellectual property will increase should Realtek enter into a supply agreement with Nuheara as a basis for submitting that the sum of $500,000 is such that the arrangements do not adequately protect Realtek’s interests, rings hollow.

46    Next, Realtek submits that the $500,000 proposed to be quarantined is unfair to it for four reasons.

47    First, because it does not recognise the prior interest of Realtek as a secured creditor.  I do not accept that the Administrators have not recognised prior interest of Realtek as a secured creditor.  It was open to Realtek to put its own DoCA proposal.  Further, it was open to Realtek to enter into a supply agreement with Nuheara.  It is because the Administrators were left with only the Syndicate’s DoCA Proposal, or in the event that is not accepted by the creditors, liquidation with substantially less, if any, returns that the Administrators have brought this application.  In the absence of the ability to sell the Property, the essence of the DoCA Proposal falls away.

48    Second, it submits that due to the plaintiffs’ decision to trade while incurring significant losses and costs, the value of the Property has been compromised.

49    Realtek notes that during the period of the administration, the plaintiffs have incurred significant trading losses, totalling $502,205, from 7 August 2024 to 3 November 2024, with a closing balance as at 10 December 2024 of $671,745.00.

50    As to those submissions, it is not clear why Realtek submits the value of the Property has been compromised.  The Administrators’ view is that the sale of Nuheara’s business gives the greatest prospect of a higher return to the creditors, whether secured or otherwise.  A necessary part of achieving the sale of the business as a going concern is to incur expenses in keeping the company trading.  Further, although there has been a loss sustained by the business whilst the Administrators were conducting it, since the DoCA Proposal was put by the Syndicate, the Syndicate has funded the Administration.

51    In all these circumstances, I do not accept Realtek’s submission as to the running of the business.

52    Third, it submits Realtek will be provided with $500,000, but will be excluded from the pool of unsecured creditors benefiting from a provision of funding by Orecchio in the amount of $3,385,382.

53    Realtek submits that the effect of the DoCA Proposal is that as a secured creditor, Realtek is to be paid $500,000 in circumstances when Nuheara is currently indebted to it in the amount of $2,591,036.31, a recovery of less than 20 cents per dollar.

54    As to the those submissions, Realtek’s complaints that it will be provided with $500,000, but will be excluded from the pool of unsecured creditors benefiting from a provision of funding by Orecchio in the amount of $3,385,382, has merit.  Nevertheless, the alternative is liquidation, which in the opinion of the Administrators will result in significantly less returns to the creditors and will result in the business not continuing.

55    Fourth, the defendants claim they have been prejudiced due to the urgency of the hearing in this matter as they have not had the ability to source evidence to support its opposition to this application.  They say that the DoCA’s terms did not require that the application be determined before the second meeting of creditors and that this was only raised on 13 February 2025.

56    I do not accept that submission, and in particular, I do not accept that Realtek has been prejudiced by the urgency of the hearing.  Realtek had engaged with Nuheara prior to the appointment of Administrators and with the Administrators since their appointment.  It has had ample opportunity to source evidence to support its opposition to the application, and as a secured creditor knew of the impending second meeting of creditors.

57    It is for these reasons that I am satisfied that arrangements have been made to protect adequately Realtek interests:  s 442C(3).

58    Since I am satisfied as to the matters in s 442C(3) of the Act, the Court’s discretion is enlivened.

59    Overall, the proposed sale of the Property pursuant to the DoCA Proposal is consistent with the objects of Part 5.3A of the Act, namely to maximise the chances of the continued existence of the business of the companies in, and following, administration.  It has the added benefit of providing a better return to creditors than if the companies were wound up.  Although Realtek will be excluded from the Creditors’ Trust, it will nonetheless have its $500,000 payment prioritised.

60    The question of whether the DoCA Proposal will be accepted or not, is one for the creditors, however the creditors are entitled to know that if they vote in favour of the DoCA Proposal, it is able to be performed and not prevented by a pre-existing security interest.

61    In the circumstances, the prospect of a significantly less return to all creditors carries considerable weight in considering the application under s 442C(2)(c) and the exercise of the discretion.  The winding up of the companies and the sale of the Property as individual assets to any number of buyers would not, in my opinion, be consistent with the objects of Part 5.3A such that in the exercise of the Court’s discretion, leave should be granted to the Administrators to dispose of the assets and the business pursuant to a Business Sale and Purchase Agreement in the event the DoCA Proposal is accepted at the second meeting of creditors.

62    It is for these reasons that I made the orders on 21 February 2025.

Further hearing on 25 February 2025

63    Following the hearing on 21 February 2025, Realtek informed the Administrators of its own DoCA Proposal.

64    The matter was called on again urgently on 25 February 2025, at which time the Court made orders adjourning the second meeting of creditors and including a requirement that if Realtek was to put in a proposed DoCA, it was to provide funding for the ongoing Administration whilst its DoCA was being considered.

Associate:

Dated:    27 March 2025