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Protecting Secured Interests: Important asset protection considerations from Jones (Admin) v Realtek Semiconductor Corp Nuheara Ltd (Admins Apptd) (No 1) [2025]

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The Federal Court decision in Jones (Admin) v Realtek Semiconductor Corp Nuheara Ltd (Admins Apptd) (No 1) [2025] FCA 267 provides useful discussion about  the considerations a court will have in examining whether a Voluntary Administrator or Deed Administrator may dispose of property which is subject to a security interests of a secured party during a voluntary administration or a Deed of Company Arrangement.

Background

Realtek Semiconductor Corporation (Realtek) was a company that supplied integrated circuits to Nuheara Limited (Nuheara), which, alongside its subsidiaries entered voluntary administration on 7 August 2024.

Realtek held approximately 19% of Nuheara’s issued share capital but was owed in excess of $2.5 million by Nuheara, who developed headphones and other like products.

Through a special purpose vehicle, Orecchio Pty Ltd (Orecchio), in February 2025, a group of investors proposed a Deed of Company Arrangement (DOCA), which provided that:

  1. Orecchio would purchase the assets of Nuheara for $500,000 (significantly lower than the amount owing to Realtek), which would be paid to Realtek, conditional upon discharging Realtek’s security interest;

  2. Current employees of Nuheara would either continue in their positions or receive compensation;

  3. Realtek would be an excluded creditor for the purposes of the creditor’s trust, meaning that they could not benefit from this arrangement; and

  4. Orecchio would pay:

  • $912,115 to the administrators;

  • $1,392,754 to pay post-appointment administration funding;

  • $432,832 to pay unsecured creditors, capped at 10c to the dollar; and

  • $147,681 to pay employee entitlements

Pursuant to section 442C(2)(c) of the Corporations Act 2001 (Cth) (Act), an administrator or Deed Administrator under a DOCA is prohibited from disposing of property which is subject to a security interest unless the secured party consents to the disposal or the court permits the disposal of the interest.

Realtek held the view that the DOCA was disadvantageous for their company, given that they would lose their secured interest and would be excluded from the creditors’ trust. As such, they refused to consent to the discharge of their security interest.

In contrast, the Voluntary Administrators argued that the DOCA was necessary and provided the best available return for creditors as opposed to liquidation.

An application was made to Court to adjudicate on whether the DOCA could proceed due to the impact on the secured creditor’s interest.

Outcome

The Court, in making its decision, considered the previous Federal Court decision in Re Holdco Pty Ltd (2020) which provided that, in a claim under section 442C(2)(c) of the Act the Voluntary Administrator bears the burden of proving that the interests of the secured party would be adequately protected.

This ordinarily requires that the arrangement (in this case the DOCA) sought to obtain the best available return for the secured property. However, the arrangement need not be perfect, particularly where the secured creditor would receive more under the arrangement, than in a prospective liquidation.

Where a court is satisfied in this regard, it is empowered to grant leave to permit the disposal of property of a company subject to an existing security interest.

This was the primary issue before the Court in this case.

The Court considered a range of factors in respect of the secured interest held by Realtek and the benefits received by Realtek under the DOCA compared to alternative options.

The Court found that:

  • the DOCA would provide a better return for Realtek than the possible alternative of liquidation, where it would likely receive nothing. Thus, Realtek was relatively positioned better under the DOCA where it would receive a $500,000 payment;

  • the benefits of the DOCA to unsecured creditors and employees was more advantageous for these parties than liquidation would be. This was contrasted against its findings that Realtek could not prove any credit risk in being paid the $500,000;

  • Realtek was concerned that they would receive a return of less than 20c to the dollar whilst also being excluded as an unsecured creditor under the DOCA, this argument was to little avail given that the alternative was liquidation;

  • Realtek and the administrators had attempted, but failed to procure a supply agreement, which would increase the value of Realtek’s secured property. Realtek used the possible gains of these agreements as evidence as to why the requested leave should be denied;

  • under section 442C(2)(c) of the Act, it was enlivened to dismiss Realtek’s secured interest in the property of the company in voluntary administration and give leave for the DOCA to proceed.

Key Takeaways

The Court’s decision highlights factors which will affect the grant of leave by a court to dispose of a secured interest in property of a company.

The case highlights that:

  • the negative impacts of an arrangement on a secured party should be considered in comparison to the benefits conferred upon other creditors and the outcomes available in a liquidation. This is a particularly strong consideration where there is no alternative that would provide a better return to creditors; and

  • the interests of secured parties are not impenetrable in a voluntary administration process. All parties need to assess their potential sensitivities in the event of a voluntary administration.

Please contact Alicia Hill if you would like to discuss further.

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Jake Cole
Senior Associate
T: +61 3 9611 0112 | M +61 413 557 157
E: jcole@sladen.com.au

Charlie Cooper
Law Clerk
E: ccooper@sladen.com.au

Alicia Hill