Securing Model Law Recognition of a Chapter 11 Bankruptcy in Australia

The decision of Justice Halley in York, in the matter of Exactech, Inc (No 2) [2025] FCA 73 illustrates how a US chapter 11 bankruptcy can be recognised in Australia as a foreign main proceeding,^[1] obtaining for the debtor Model Law protections including a stay on proceedings against the debtor akin to that in a voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth).

Background

Our earlier summary of the background on Exactech’s chapter 11 proceeding and the interlocutory hearing, York, in the matter of Exactech, Inc [2024] FCA 1522 (Interlocutory Hearing) can be found here and is briefly outlined below for convenience.

Exactech, Inc., a US manufacturer and distributor of orthopaedic implant devices, has faced significant litigation in the US and Australia since 2021 following the voluntary recall of certain devices due to non-conforming packaging, including a class action in the Federal Court of Australia. While Exactech's indirect Australian subsidiary, Exactech Australia Pty Ltd (Exactech Australia), is also a defendant in the Australian Class Action, it is not subject to any external administration.

On 29 October 2024, Exactech together with four affiliated companies filed voluntary petitions for chapter 11 bankruptcy in the US.

Jesse York, in his capacity as foreign representative of Exactech, sought recognition of the Chapter 11 Proceeding as a foreign main proceeding under art 17 of the UNCITRAL Model Law on Cross-Border Insolvency given effect in Australia pursuant to the Cross-Border Insolvency Act 2008 (Cth) (Model Law).

At the Interlocutory Hearing, the Chapter 11 Proceeding was recognised as a foreign main proceeding and Justice Halley granted an interim stay under art 19 of the Model Law, pending the final determination of the application.

Final hearing before Justice Halley

The final hearing of the application took place on 6 February 2025, and Justice Halley made orders recognising the Chapter 11 Proceeding as a foreign main proceeding, and ordered that the applicable stay be that which applies under Part 5.3A of the Corporations Act, as though Exactech was in voluntary administration and as though references to the administrator were references to Mr York.

Emma Beechey appeared as counsel for the applicant, instructed by Clayton Utz. Simon Harrold, the lead applicant in the Australian class action against Exactech and Exactech Australia Pty Ltd, was granted leave to appear as an interested party.

Satisfying the requirements for final Model Law recognition

In order to obtain recognition under the Model Law, a foreign proceeding must meet the requirements of art 17 of the Model Law, including qualifying as a "foreign proceeding" under art 2(a). Justice Halley confirmed that the requirements of art 17 were met and reaffirmed that a Chapter 11 bankruptcy proceeding constitutes a foreign proceeding under the Model Law. He reiterated his satisfaction that Exactech’s centre of main interests was in the US for the same reasons previously outlined, namely:

• its registered office is located in Florida, US;
• it is managed entirely from its principal place of business in Florida;
• all appointed officers reside in the US; and
• it has no business premises, staff or business operations outside of the US.

Additionally, Justice Halley reaffirmed that Mr York qualified as a "foreign representative" and was entitled to seek recognition of the foreign proceeding. 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.

Justice Halley found that Mr York had established his entitlement to have the Chapter 11 Proceeding recognised as a foreign main proceeding in Australia, with all substantive and procedural requirements met. Under art 20(1)(a) of the Model Law, his Honour confirmed that such recognition triggers an automatic stay on individual actions and proceedings concerning Exactech’s assets, rights, obligations and liabilities. He ordered that the appropriate form of a stay under art 20 for recognising a US chapter 11 proceeding was that applicable to a voluntary administration under the Corporations Act.^[2]

The foreign representative's proposed use of a voluntary administrator’s power to consent

As noted by Justice Halley in his judgment, Mr York had already informed the class action plaintiff that if recognition were granted, Mr York would give his consent under section 440D of the Corporations Act for certain steps to be taken in pursuit of a settlement of the Australian Class Action, to which Exactech Australia was also a defendant. This use of the voluntary administrator’s power to consent avoided any challenge to the recognition application by the class action plaintiff.

Waiving the formal notice requirements

Justice Halley further ordered that notice of the final hearing orders be provided to the lawyers in the Australian class action and other relevant parties. As he had at the Interlocutory Hearing, Justice Halley dispensed with the Corporation Rules notice requirements by waiving newspaper advertisement requirements, given the Chapter 11 Proceeding had already been widely advertised, and endorsing a simplified, clearer notice.