Akers v Deputy Commission of Taxation

A. Introduction

1. By an originating process filed on 20 December 2024, the plaintiff, Jesse York, in his capacity as the foreign representative of the defendant, Exactech, Inc (Exactech) seeks recognition of a Chapter 11 proceeding (Chapter 11 Proceeding) filed in the United States of America Bankruptcy Court for the District of Delaware (US Bankruptcy Court) as a foreign main proceeding pursuant to art 17 of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (Model Law), being Sch 1 to the Cross‑Border Insolvency Act 2008 (Cth) (Act), and related relief (Model Law Application).
2. On 23 December 2024, I made an order granting an interim stay pursuant to art 19 of the Model Law, pending final determination of the Model Law Application on 6 February 2025. I also made orders providing for directions for notifying potential creditors and other persons who may have an interest in the Model Law Application, in place of the requirements for notification set out in r 15A.6 and r 15A.7 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules).
3. Ms E L Beechey of counsel appeared for Mr York.
4. Mr York relies on the following evidence:
5. the affidavit that he affirmed on 19 December 2024 (York Affidavit) together with Exhibit JY-1 to that affidavit; and
6. the affidavits of Suami Campos, a solicitor employed by Clayton Utz who has carriage of the matter for Mr York, affirmed on 5 February 2025 and 6 February 2025.
7. Simon Harrold, the lead applicant in the class action commenced against Exactech Australia Pty Ltd (Exactech Australia) and Exactech in this Court in September 2024, being proceeding NSD 1224 of 2024 (Class Action), sought and was granted leave to appear at the hearing today as an interested party.
8. Mr M Robinson of counsel appeared for Mr Harrold. Mr Harrold relies on the affidavit sworn on 6 February 2025 by Diane Gail Chapman, a special counsel employed by the solicitors for Mr Harrold in the Class Action.
9. Rule 15A.3(2)(b) of the Corporations Rules requires that the debtor, Exactech, be the defendant.

B. Background

1. I set out the background of this proceeding in York, in the matter of Exactech, Inc [2024] FCA 1522 at [5]-[14] and for convenience repeat it below.
2. Mr York is the Chief Restructuring Officer of Exactech.
3. Exactech is a United States company incorporated and headquartered in Florida. It is relevantly a manufacturer and developer of orthopaedic implant devices. Its products relevantly include hip implants, knee implants, and shoulder glenoids and liners. Exactech distributes its products to markets throughout the United States, Europe, South America, Asia, and Australia.
4. Exactech is part of the Exactech Group, the ultimate parent company of which is Osteon Holdings (Osteon), Inc. Exactech is the main operating company for the Exactech Group's United States' operations.
5. Since 2021, various Exactech Group companies have faced significant litigation stemming from certain product recalls. In particular, Exactech, in coordination with the United States Food and Drug Administration, voluntarily recalled certain knee, hip and shoulder components which had been distributed in non-conforming packaging. More than 2,585 patients have filed lawsuits in multiple Federal, State, and non-United States courts alleging damages relating primarily to the non-conforming packaging and resulting recalls.
6. Separately, Exactech has been defending "qui tam claims", being claims brought by individuals on behalf of a State or the Federal government of the United States. These claims were originally filed in 2018 in the Northern District of Alabama, which, together with a separate investigation initiated in 2023, involve allegations that Exactech's sale of certain knee devices violated the False Claims Act and similar State statutes.
7. As at 29 October 2024, Exactech had approximately $606 million in total assets and approximately $485 million in total liabilities, not including any liabilities that Exactech may have as a result of the pending litigation or other potential litigation.
8. In Australia, Exactech's products are distributed by Exactech Australia. Exactech Australia is an indirect subsidiary of Exactech. Exactech Australia is not in any form of external administration.
9. In the period between 21 August 2021 and 7 March 2024, Exactech Australia, in consultation with the Australian Therapeutic Goods Administration, recalled knee, hip and shoulder components manufactured by Exactech and packaged in non-conforming packaging that Exactech Australia had distributed in Australia.
10. On 29 October 2024, Exactech, Osteon and three other companies in the Exactech Group each filed voluntary petitions in the US Bankruptcy Court to commence bankruptcy proceedings under Chapter 11 of Title 11 of the United States Bankruptcy Code. The US Bankruptcy Court ordered that the five Chapter 11 proceedings be consolidated for administrative purposes under Case No. 24-12441.

C. Compliance with notification orders and service requirements

1. On 23 December 2024, I also ordered that the requirements as to service, notification and publication in r 15A.3(4)(a) and r 15A.6(1) of the Corporations Rules be dispensed with. In lieu thereof, I made orders for a notification regime requiring Mr York to give notice of the application and the hearing date by way of a customised notice (Notice) sent by email and post within 15 business days to the persons listed by category in paragraph 30 and paragraph 42 of the York Affidavit and to the applicant in the Class Action (Notification Regime).
2. Ms Campos confirms in her two affidavits that she sent all of the Notices in accordance with the Notification Regime. I note with respect to the proposed notifications identified in paragraph 42 of the York Affidavit, that Notices were only sent to the Australian Securities and Investments Commission (ASIC), the Australian Taxation Office and the Australian Therapeutic Goods Administration in the period between the adjournment of the hearing earlier this morning and the re-commencement of the hearing at 2.15 pm.
3. I appreciate that this time frame is exceptionally short, but at the same time, the communications to each of those entities make it clear that Mr York is not currently aware of any potential claim that any of those entities may have against Exactech.
4. For the Notices sent by email, Ms Campos otherwise gives evidence of having received no bounce-back or delivery failure notifications, but she does confirm that she received five out of office responses.
5. For the Notices sent by post, Ms Campos gives evidence that only two of the posted Notices were returned to sender as undeliverable. She also gives evidence of enquiries that she has received from five individuals, none of whom indicated any intention to oppose the relief sought on this application.

D.1. Overview

1. Mr York seeks an order that the Chapter 11 Proceeding be recognised as a foreign main proceeding pursuant to art 17(2)(a) of the Model Law.
2. Article 2(b) of the Model Law defines "foreign main proceeding" as a foreign proceeding taking place in the State where the debtor has its centre of main interests (COMI).
3. Article 16(3) of the Model Law provides that in the absence of proof to the contrary, a company's COMI is presumed to be in the State in which it has its registered office.
4. Exactech's registered office is located at 2320 NW 66th Ct, Gainesville, Florida, United States 32653.
5. Rebuttal of the presumption for which art 16(3) provides requires evidence of factors which are both objective and ascertainable by third parties, including creditors: see Kapila, in the matter of Edelsten (2014) 320 ALR 506; [2014] FCA 1112 at [53] (Beach J).
6. I am satisfied that the presumption is not displaced in this case, not least because Mr York gives evidence that (a) Exactech is managed entirely from its principal place of business in Florida, United States; (b) all of Exactech's appointed officers are resident in the United States; and (c) Exactech does not have business premises, staff or any business operations outside of the United States.
7. Subject to art 6, art 17(1) of the Model Law provides that a foreign proceeding shall be recognised if all the requirements of art 17(1) are satisfied.
8. Article 6 provides that the Court may refuse to take any action governed by the Model Law if the action would be manifestly contrary to the public policy of Australia. No matter has been brought to my attention that would suggest that art 6 is engaged.
9. Article 17(1) of the Model Law provides that a foreign proceeding must be recognised if certain prescribed requirements are complied with. Those substantive and procedural requirements, addressed in turn below, are found within:
10. Article 17 of the Model Law;
11. Article 15 of the Model Law as modified by s 13 of the Act; and
12. Division 15A of the Corporations Rules.

D.2. Article 17 requirements

1. Article 17 provides that a foreign proceeding shall be recognised if it meets the following four requirements: (a) The foreign proceeding is a proceeding within the meaning of subparagraph (a) of article 2; (b) The foreign representative applying for recognition is a person or body within the meaning of subparagraph (d) of article 2; (c) The application meets the requirements of paragraph 2 of article 15; (d) The application has been submitted to the court referred to in article 4.
2. As to art 17(1)(a), art 2(a) defines a 'foreign proceeding' as: [A] collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation;
3. Chapter 11 proceedings have been recognised by this Court as meeting this definition in each of the following cases:
4. Moore as Debtor-in-Possession of Australian Equity Investors v Australian Equity Investors [2012] FCA 1002 at [12] (Emmett J) (recognition of the US Chapter 11 proceeding of an Arizona limited partnership);
5. Young, Jr, in the matter of Buccaneer Energy Limited v Buccaneer Energy Limited [2014] FCA 711 at [15] (Jagot J) (recognition of the US Chapter 11 proceeding of an Australian public company listed on the Australian Stock Exchange);
6. Kapila at [32] (Beach J) (recognition of the US Chapter 11 proceeding of the individual debtor Geoffrey Edelsten);
7. Aquino (Trustee), Re Mcgowan (Bankrupt) v Mcgowan [2020] FCA 221 at [35]-[38] (Markovic J) (recognition of the US Chapter 11 proceeding of the individual debtor Gerard McGowen); and
8. Bradley, in the matter of Astora Women's Health, LLC v Astora Women's Health, LLC (No 2) [2022] FCA 1268 (Astora (No 2)) at [32]-[35] (Lee J) (recognition of the US Chapter 11 proceeding of a Delaware limited liability company).
9. As to art 17(1)(b), Mr York satisfies the definition of "foreign representative" in art 2(d). Article 15(1) of the Model Law allows a foreign representative to apply for recognition of a foreign proceeding. Article 2(d) defines 'foreign representative' as: [A] person or body, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of the foreign proceeding. (Emphasis added.)
10. In this case, the US Bankruptcy Court has specifically appointed Mr York to act as the foreign representative for the purpose of seeking recognition in Australia of the Chapter 11 Proceeding. Accordingly, Mr York, in his capacity as the foreign representative of Exactech, is the appropriate plaintiff.
11. As to art 17(1)(c), the requirement to adduce evidence of the existence of the foreign proceeding and the appointment of the foreign representative is satisfied by the tender of the order made in the Chapter 11 Proceeding appointing Mr York as foreign representative for the purposes of making this application which appears at page 6 of Exhibit JY-1. Pursuant to art 16(2), this Court is entitled to presume that documents submitted in support of the application for recognition are authentic.
12. As to art 17(1)(d), by operation of s 10(b)(i) of the Act, the Federal Court of Australia is a Court referred to in art 4 of the Model Law.

D.3. Article 15 requirements as modified by s 13 of the Corporations Act 2001 (Cth)

1. Article 15(1) permits a foreign representative to apply for recognition.
2. The requirements of art 15(2) are picked up by art 17(1)(c) and are addressed above.
3. Article 15(3) requires an application for recognition to be accompanied by a statement identifying all foreign proceedings (as defined in art 2(a) of the Model Law) in respect of the debtor that are known to the foreign representative. Section 13 of the Act modifies that article, requiring that the application must also be accompanied by a statement identifying, relevantly, any appointment of a receiver within the meaning of s 416 of the Corporations Act 2001 (Cth) (Corporations Act) and all proceedings under Chapter 5 of the Corporations Act and under s 601CL and Sch 2 to the Corporations Act that are known to the foreign representative. These requirements are satisfied in the present case because Mr York gives evidence that to his knowledge Exactech is not subject to any such proceedings, other than the Class Action and the thirteen proceedings that had been commenced by group members.

D.4. Division 15A.7 requirements

1. Rule 15A.7 of the Corporations Rules provides that a foreign representative is required to, as soon as practicable after the order is made:
2. send a notice of the making of the order in accordance with Form 21 to each person whose claim to be a creditor of the defendant is known to the plaintiff; and
3. to publish a notice of the making of the order in accordance with Form 21, in a daily newspaper circulating generally in the State or Territory where the defendant has its principal, or last known, place of business.
4. In place of r 15A.7, Mr York asks the Court to make the following notification orders, which are similar to those made on the interim application, to:
5. dispense with the requirement to give notice of the recognition application to each known creditor individually but maintain the requirement to give notice to the applicant in the Class Action, other specifically known claimants (either directly or to their solicitor) and to the surgeons and hospitals who have corresponded with Exactech in respect of particular patients; and
6. modify the Form 21 format for the notification to direct readers to the best source of information to respond to any queries they may have.
7. I am satisfied that the notification orders sought in this case are an appropriate replacement for the notification regime set out in r 15A.7 of the Corporations Rules for the reasons set out below:
8. the orders are in the same terms as the notification orders that I made on the interim application;
9. this proceeding has now been widely advertised in Australia by way of a media campaign across network television, print, digital and social media;
10. any attempt to notify each of the registered class members directly might well cause confusion, as recipients may not understand that they do not need to take steps in relation to this proceeding in order to exercise their rights in the Chapter 11 Proceeding.
11. the changes in wording from Form 21 increase the likelihood of the notice being understood by non-lawyers, and minimise the risk of inquiries being directed to the solicitors acting for Exactech in the Model Law Application which would be more appropriately directed either to Kroll as noticing agent for Exactech in the Chapter 11 Proceeding or, in the case of the Class Action, to the solicitors for the applicant in that proceeding, Gerard Malouf & Partners.
12. any creditors who wish to pursue action in Australia despite the recognition and accompanying stay will be able to approach Mr York for consent under s 440D of the Corporations Act or approach the Court for leave to proceed against Exactech under s 440D; and
13. Mr York seeks an order granting liberty to apply to any person affected by the orders which should indicate to persons who become aware of the Australian recognition orders that they have a right to approach the Court despite the stay.
14. Mr York also seeks an order dispensing with the requirement to publish a notice of the making of the order in a daily newspaper circulating generally in the state or territory where the defendant has its principal, or last known, place of business. I am satisfied that such an order should be made given:
15. the Chapter 11 Proceeding has now been widely advertised;
16. Australian insolvency notices required under the Corporations Act are no longer published in newspapers and are instead published on ASIC's insolvency notices website, such that Australian creditors would not be expected to be reviewing the notices section of newspapers for such notices;
17. such advertisements appear in the print copies of The Australian and the Australian Financial Review but not on their websites; and
18. the proposed notice regime without advertisements will bring the application to the direct attention of all those who are reasonably likely to have claims against Exactech, including the litigating plaintiffs, current and former employees of Exactech Australia, Australian regulators and tax authorities, Australian surgeons and hospitals who have asserted claims and Australian-based providers of goods and services to Exactech.
19. Nevertheless, it is necessary to highlight a particular issue that emerged in the course of the hearing. Ms Chapman gives evidence that there are understood to be approximately 7,000 instances of the supply of the defective devices to individuals in Australia and therefore as matters currently stand, there may be up to 7,000 group members of the Class Action commenced by the lead applicant, Mr Harrold.
20. As of the hearing, however, the solicitors acting for Mr Harrold only have the contact details for some 370 group members. On 13 January 2025, a notification was made by way of a newsletter to the 320 group members whose contact details were known at that stage. Subsequently, further notifications have been made, as and when additional contact details for group members have been located.
21. The solicitors for Mr Harrold have sought the issue of some 42 subpoenas to named surgeons seeking productions of documents that would assist in the identification of the balance of potential group members. Documents have been produced in response to those subpoenas, but further work is being undertaken to confirm contact details. As a result, although notification has been given to the lead applicant and to some 370 group members, a very significant number of group members have not received notification of the hearing.
22. The lead applicant, Mr Harrold, however, has appeared today in effect on behalf of all group members and indicated that he does not oppose the orders being made today, including orders with respect to the stay of proceedings, discussed below. It is important to note that in that context, Mr York has confirmed to the solicitors acting for Mr Harrold that notwithstanding the stay that will be ordered on the Model Law Application, he will consent to the solicitors for the lead applicant in the Class Action taking the following steps:
23. issuing notices to group members regarding the group members' opt out, registration of group member interest, mediation and any settlement approval that may ultimately be sought;
24. applying for leave to issue and issuing subpoenas for production for the purpose of identifying group members and obtaining their contact details for the distribution of notices; and
25. preparing for and participating in any mediation and/or settlement discussions in which Exactech agrees to participate, and the seeking of court approval for any settlement that may ultimately be agreed.

E. Automatic stay

1. Pursuant to art 20(1)(a) of the Model Law, upon the recognition of a foreign proceeding as a foreign main proceeding, the commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities are stayed. The Court does not have discretion regarding the imposition and scope of the automatic stay which comes into effect pursuant to art 20 of the Model Law: see Re Senvion GmbH (No 2) (2019) 140 ACSR 20; [2019] FCA 1732 at [24]-[29] (Anastassiou J); Tai-Soo Suk v Hanjin Shipping Co Ltd [2016] FCA 1404 at [45] (Jagot J); Akers v Deputy Commission of Taxation (2014) 223 FCR 8; [2014] FCAFC 57 at [55] (Allsop CJ, Robertson and Griffiths JJ agreeing).
2. Section 16 of the Act relevantly provides that the scope and the modification or termination of the stay are the same as if the stay arose under Chapter 5 (other than Part 5.2 and Part 5.4A) of the Corporations Act.
3. The appropriate form of the art 20 stay when recognising a US Chapter 11 proceeding is most closely analogous to voluntary administration under the Corporations Act: Astora (No 2) at [44]-[50] (Lee J).
4. I am satisfied that, as in Astora (No 2), the stay in this case should be the same as would apply if the stay or suspension arose under Part 5.3A in Chapter 5 of the Corporations Act.

F. Disposition

1. For the foregoing reasons, I am satisfied that Mr York has established that he is entitled to have the proceeding recognised by this Court as a foreign main proceeding and that all necessary substantive and procedural requirements have been met.
2. For the foregoing reasons, orders substantially in the form sought by Mr York in the originating process are to be made. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.