Federal Court of Australia

Jones (Administrator) v Realtek Semiconductor Corporation in the matter of Nuheara Limited (administrators appointed) (No 2) [2025] FCA 276

ORDERS

THE COURT DECLARES pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Corporations Act 2001 (Cth) (Act)) that:

1.    The Plaintiffs are justified nunc pro tunc in entering into and causing Nuheara Ltd, Nuheara IP Pty Ltd and Terrace Gold (Companies) to enter into the Funding Term Sheet dated 18 November 2024 (Syndicate Funding Agreement) and in drawing down and utilising funds in the total amount of $1,131,748 under that agreement.

2.    Subject to orders 3 and 4 below, the Plaintiffs are justified in entering into and causing the Companies to enter into a Funding Term Sheet in the form of the document at annexure "MBJ-43" to the Affidavit of Martin Jones sworn 5 March 2025 (Realtek Funding Agreement) and in drawing down and utilising funds of up to $501,528.80 under that agreement.

3.    The Defendant is to pay the costs of the Plaintiffs of and incidental to the applications heard 21 February 2025, 25 February 2025 and 27 February 2025, and 60% of the Plaintiffs' amended interlocutory application filed 10 March 2025, including the costs of today, which costs are to be assessed by a Registrar if not agreed.

4.    The sum determined by a Registrar, or as agreed by the parties as the case may be in accordance with order 3 above, is to be deducted from any sum payable to the Defendant pursuant to the Realtek Funding Agreement in the event that the Realtek Deed of Company Arrangement Proposal is not accepted by creditors at the meeting of creditors to be held on 17 March 2025, or such other date as the Court orders.

5.    Save as provided in orders 3 and 4 above, the Plaintiffs' obligation to repay the funds drawn under each of the Syndicate Funding Agreement and Realtek Funding Agreement is a debt or liability incurred in good faith and without negligence by the Plaintiffs as administrators of the Companies in the performance or exercise of their functions and power as administrators.

THE COURT ORDERS pursuant to s 447A(1) of the Act that:

6.    Part 5.3A of the Act is to operate in relation to the Companies as if the Plaintiff's obligations to repay the funds drawn under each of the Syndicate Funding Agreement and Realtek Funding Agreement (subject to any amount not to be repaid pursuant to orders 3 and 4 above) are a debt or liability incurred in good faith and without negligence by the Plaintiffs as administrators of the Companies in the performance or exercise of their functions and power as administrators.

7.    Part 5.3A of the Act is to operate in relation to the Companies so that:

(a)    if the Plaintiffs' indemnity (in their capacities as administrators of each of the Companies) pursuant to section 443D of the Act out of the property of the relevant Company is insufficient to satisfy any debt or liability incurred by the Plaintiffs (in their capacities as administrators of the relevant Company) in respect of, or pursuant to, the Syndicate Funding Agreement and the Realtek Funding Agreement, (to the extent of such liability after adjustment in accordance with orders 3 and 4 above), then the Plaintiffs will not be personally liable, and are relieved of any personal liability, to pay any such debt or liability to the extent of that insufficiency; and

(b)    subject to orders 3 and 4 above, the Plaintiffs' indemnity pursuant to section 443D of the Act out of the property of any of the Companies is, in the case of each of the Companies, to cover all debts and liabilities incurred by each of the Companies in respect of the Syndicate Funding Agreement and the Realtek Funding Agreement.

8.    Part 5.3A of the Act is to operate in relation to the Companies so that the requirements of section 439A of the Act and rule 75-225 of the Insolvency Practice Rules (Corporations) (IPRC) are taken to be complied with in respect of the Companies upon the Plaintiffs posting to the website that they maintain for the administration of the Companies:

(a)    a further report and statement setting out the matters in rule 75-225 of the IPRC taking into account all proposals for deeds of company arrangement provided to the Administrators by 9am AWST on 13 March 2025 (but disregarding any proposals or other correspondence received thereafter);

(b)    a draft deed of company arrangement in respect of any such proposal; and

(c)    the Business Sale and Purchase Agreement referred to in any such proposal (or a draft of same if an executed copy does not exist by the relevant time),

(d)    by 11:59pm AWST on 13 March 2025.

AND FURTHER THAT:

9.    Order 1 of 21 February 2025 be amended as follows:

“In the event that a proposed deed of company arrangement by any party other than the Defendant, 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 on 17 March 2025 or at any adjournment of that meeting as ordered by the Court, 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 Business Sale and Purchase Agreement which is annexure "MBJ-23" to the Affidavit of Martin Bruce Jones sworn 20 February 2025 to Orrechio Pty Ltd to give effect to such deed of company arrangement."

10.    The defendant’s interlocutory application filed 10 March 2025 is dismissed.

11.    Save as expressly dealt with by these orders, the Plaintiffs' costs of this application are costs properly incurred in the administration of the Companies, and are to 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:

Background

1    These reasons should be read in conjunction with Jones (Administrator) v Realtek Semiconductor Corporation in the matter of Nuheara Limited (administrators appointed) (No 1) [2025] FCA 267 in which I set out the history of this matter.

2    There are three interlocutory applications before the Court:

(1)    The plaintiffs’ amended interlocutory application, dated 10 March 2025;

(2)    The application by Orecchio Pty Ltd, dated 12 March 2025, for leave to be heard in these proceedings; and

(3)    Realtek’s application for an injunction, dated 10 March 2025, restraining the Administrators from selling the assets and the business conducted by Nuheara Ltd to Orecchio on certain terms.

3    On 12 March 2025, I heard all three applications before delivering my decision on each.  These are my reasons for the decisions.

Orecchio’s interlocutory application

4    Orecchio is a special purpose vehicle which, should the creditors of Nuheara and its two wholly owned subsidiaries, Nuheara IP Pty Ltd and Terrace Gold Pty Ltd, both of which are also in administration, approve a Deed of Company Arrangement put forward by what is known in these proceedings as the ‘Syndicate’, is to purchase the assets and business of Nuheara, Nuheara IP and Terrace Gold.

5    Orecchio sought to be heard on the interlocutory application by the plaintiffs and Realtek respectively.

6    No party objected, so leave was granted to Orecchio to appear and to be heard.

Plaintiffs’ interlocutory application dated 10 March 2025 – parties’ submissions and consideration

7    The plaintiffs seek an order that the Court’s orders made 21 February 2025, granting leave to the Administrators pursuant to s 442C(2)(c) to sell secured property, be amended (s 442C orders).

8    The Property to be disposed of pursuant to leave granted in the s 442C(2) orders was the subject of a security interest in favour of Realtek Semiconductor Corporation.

9    Insofar as relevant, the s 442C(2) order read:

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.

10    Shortly after the s 442C order was made on 21 February 2025, Realtek made its own DoCA Proposal (Realtek DoCA Proposal).

11    On 6 March 2025, which was soon after the Realtek DoCA Proposal, the Syndicate made a revised DoCA Proposal (Revised Proposal).

12    The plaintiffs seek orders in the form of minor amendments to the s 442C orders, contending that the amendments merely bring the orders up to date to reflect a revised DoCA Proposal at the second meeting of creditors to be held on 17 March 2025 in the following terms:

In the event a proposed deed of company arrangements, 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 on 17 March 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 Business Sale and Purchase Agreement which is annexure "MBJ-23" to the Affidavit of Martin Bruce Jones sworn 20 February 2025) to Orrechio Pty Ltd to give effect to such deed of company arrangement.

13    Realtek opposed the amendment to the 21 February 2025 orders.

14    The plaintiffs repeat their submissions made at the previous argument in Realtek (No 1), that in a liquidation scenario, Nuheara’s assets are unlikely to sell because of the lack of any serious interest from bidders.  The plaintiffs submit that the Syndicate’s DoCA Proposal would prevent an immediate fire sale, maximising returns for creditors.  I accept that submission for the reasons I gave in Realtek (No 1).

15    The plaintiffs submit that Realtek has engaged in “tactical manoeuvring” and delayed its bid despite being invited to submit a DoCA Proposal as early as December 2024.  The plaintiffs submit Realtek’s behaviour is inconsistent with a party’s obligation to the Court: UBS AG v Tyne (2018) 265 CLR 77 at [45].  The plaintiffs submit further that Realtek ought not to be afforded a second opportunity to argue against a s 442C order, as its failure to act earlier by proposing its own DoCA Proposal led to unnecessary costs and disruption.

16    I do not need to determine whether Realtek has engaged in “tactical manoeuvring” and delayed submitting its DoCA Proposal.  It is sufficient to observe that this is an evolving situation which will be considered as it evolves.  Part of that consideration will be to take into account the actions of the parties over the course of this matter.

17    Notwithstanding the changed fact scenario as a consequence of Realtek’s DoCA Proposal, the plaintiffs submit that the principles applicable to an application under s 442C(2)(c) found in RE Holdco Pty Ltd (administrators appointed) [2020] FCA 666, remain satisfied.  I accept that submission for the reasons I gave in Realtek (No 1).

18    Realtek submits that the Syndicate’s Revised Proposal fails to adequately protect its interests.  It contends that the Revised Proposal provides higher returns to unsecured creditors at the expense of Realtek, fails to ensure full repayment of Court-ordered funding and provides an undervaluation of Nuheara’s assets in comparison to Realtek’s DoCA Proposal.

19    Realtek submits that a comparison of its DoCA Proposal against the Revised Proposal reveals:

20    Realtek contends that its DoCA Proposal offers the best return.

21    Orecchio submits that it is not correct that Realtek’s DoCA Proposal offers the best return since “a credit bid” which forms part of Realtek’s DoCA Proposal cannot be equated to cash and therefore inflates the asset value based on speculative debt forgiveness.

22    The plaintiffs submit that the creditors should decide what is in their best interests by voting on the two competing DoCA Proposals.

23    The plaintiffs submit further that the merits of Realtek’s DoCA Proposal is irrelevant to the Court’s consideration as the Court does not determine the commercial merits of competing proposals and that the decision should rest with Nuheara’s creditors: Lehman Brothers Holdings Inv v City of Swan (2010) 240 CLR 509 at [31].

24    I accept the plaintiff’s submission.  It is not the role of the Court to second guess what the creditors might vote to accept.  What the Court is concerned with is being satisfied as to the requirements in s 442C(3) and if satisfied, then the exercise of the Court’s discretion under s 442C(2).

25    The plaintiffs submit that Realtek’s interests as a secured creditor are adequately protected and any contention to the contrary is indicative of Realtek seeking a wider commercial interest.  I accept that Realtek’s interests as a secured creditor are adequately protected for the reasons I gave in Realtek (No 1).  It is not necessary for me to speculate as to Realtek’s intention.

26    The plaintiffs submit that the s 442C(2)(c) orders made on 21 February 2025 had been made in circumstances where the Court had already determined that the $500,000 payment to Realtek proposed in the Syndicate’s DoCA Proposal protected adequately Realtek’s interest as a secured party, thus satisfying the requirements of s 442C(3).  The plaintiffs’ submit further that Realtek’s renewed complaints about whether its interests were protected adequately are unfounded.  I accept that submission for the reasons I gave in Realtek (No 1).

27    Nothing has been put forward by Realtek to satisfy me that the leave granted in Realtek (No 1) should not continue, albeit with updated orders to reflect the current position in the Administration.

28    The plaintiffs also seek approval from the Court for the Syndicate Funding Agreement and orders to limit their personal liability, citing True North Copper Limited (Administrators Appointed) [2024] FCA 1329.  They submit that such orders are standard in insolvency cases and allow administrators to act in the best interests of creditors without undue risk.  I accept that submission and there will be orders accordingly.

29    The plaintiffs also seek approval from the Court for the Realtek Funding Agreement pursuant to which Realtek provided $501,528.80.

30    Realtek submits it provided $501,528.80 in Court-ordered funding to maintain Nuheara’s business in March 2025, but that if Realtek’s DoCA Proposal is rejected, Realtek contends all funds should be repaid before asset disposal under s 443E of the Act.

31    In contrast, in the event Realtek’s DoCA Proposal is not accepted, the plaintiffs contend that $220,000 of the $501,528.80 Court-ordered funding provided should be non-refundable on account of costs incurred and disruption caused by Realtek’s DoCA Proposal.

32    The plaintiffs submit that Realtek’s late provision of a DoCA Proposal resulted in the need to seek Court orders on 25 February 2025 to extend the second meeting of creditors, and general delays.  The plaintiffs contend that Realtek should bear such costs.

33    I accept that submission but the costs which are to be borne by Realtek will need to be either agreed or assessed.  There will be an order to that effect.

Realtek’s interlocutory application

34    Realtek’s interlocutory application seeks an order restraining the Administrators from disposing of the assets and business of Nuheara, Nuheara IP and Terrace Gold.  It submits that the 21 February 2025 order was specific to the Syndicate’s DoCA Proposal dated 17 February 2025, and not a blanket authority to dispose of assets.

35    Realtek’s application is without merit.  The Administrators recognised the limitation of the orders made on 21 February 2025 and proffered at an early opportunity an undertaking not to dispose of the assets or the business of Nuheara, Nuheara IP and Terrace Gold.  Further, the order made on 21 February 2025 was directed to the Syndicate’s DoCA Proposal made 17 February 2025, whereas as I have noted above, that DoCA Proposal was superseded by a Revised Proposal made 6 March 2025.

36    Accordingly, I dismissed Realtek’s interlocutory application.

Associate:

Dated:    27 March 2025