Revisiting the Model Law recognition of a Chapter 11 bankruptcy in Australia

The decision in York, in the matter of Exactech, Inc [2024] FCA 1522 reaffirms the scope to recognise a US chapter 11 bankruptcy in Australia as a foreign main proceeding ^[1] and demonstrates the importance of interim stay orders in protecting the assets of debtors and the interests of creditors until the final determination of the recognition application.

Exactech, Inc is a US company that manufactures and distributes orthopaedic implant devices. Since 2021, Exactech had voluntarily recalled certain devices purportedly distributed in non-conforming packaging in the United States and Australia, and as a result Exactech has been defending significant claims in the US and a class action in Australia. Exactech Australia Pty Ltd not subject to any insolvency process, is also a defendant to the Australian class action. On 29 October 2024, Exactech and four other companies within the Exactech Group submitted voluntary petitions in the US Bankruptcy Court to initiate bankruptcy proceedings under Chapter 11 of Title 11 of the United States Bankruptcy Code.

Jesse York, as the chief restructuring officer and foreign representative of Exactech, sought relief under the UNCITRAL Model Law on Cross-Border Insolvency as incorporated in the Cross-Border Insolvency Act 2008 (Cth) (Model Law) in the Federal Court of Australia. Interim orders were made by Justice Halley on 23 December 2024 which included a stay and orders in relation to notice of the application.

Emma Beechey appeared as counsel for the applicant instructed by Clayton Utz.

Satisfaction of the requirements for Model Law recognition

For a foreign proceeding to be recognised, it must meet the requirements in art 17 of the Model Law including that the foreign proceeding is a "foreign proceeding" within the meaning of art 2(a) of the Model Law. Justice Halley was content that, for the purposes of the application brought before him, these requirements were satisfied, including that a chapter 11 bankruptcy case is a foreign proceeding for the purposes) of the Model Law.

Justice Halley also found a compelling basis for the Court, in the final hearing of the application, to find that the centre of main interests of Exactech is in the United States of America because:

• Exactech is managed entirely from its principal place of business in Florida, United States;
• all of Exactech’s appointed officers are resident in the United States; and
• Exactech does not have business premises, staff or any business operations outside of the United States.

His Honour was also satisfied that the requirement in art 15(3) of the Model Law, being that an application for recognition shall also be accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative, had been met.

Form of relief granted

Justice Halley accepted that interim relief in the form of a stay was needed to protect the defendant's assets and the interests of creditors, pending the final recognition hearing, with the effect of preventing any continuation of the Australian class action against Exactech, and preventing the commencement of new proceedings against the company. The stay was crafted to allow steps to progress settlement discussions in relation to the Australian class action to continue, the stay not applying to Exactech Australia.

Orders were also made for notice of the filing of the Model Law application, and the listing of its final hearing, to be given to the lawyers for the applicant in the Australian class action proceeding, and to various other persons. In a welcome development for cross-border insolvency practitioners, Justice Halley waived the requirement to advertise the application in the notices section of Australian newspapers and endorsed the use of a simplified notice with clearer language.

The Model Law application is listed for final hearing on 6 February 2025.