Asafuji (in his capacity as the Foreign Representative of the Sanko Steamship Co., Ltd) v The Sanko Steamship Co., Ltd

A. Introduction

1. By an originating process filed on 19 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 proceeding pursuant to art 17 of the UNCITRAL Model Law on Cross‑Border Insolvency (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. Mr York relied on his affidavit that he affirmed on 18 December 2024 (in Connecticut, United States)/19 December 2024 (in Sydney, Australia), together with Exhibit JY-1 to that affidavit.
4. These are my reasons for making those orders.

B. Background

1. Mr York is the Chief Restructuring Officer of Exactech.
2. Exactech is a US 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 implants. Exactech distributes its products to markets throughout the United States, Europe, South America, Asia, and Australia.
3. Exactech is part of the Exactech Group, the ultimate parent company of which is Osteon Holdings, Inc (Osteon). Exactech is the main operating company for the Exactech Group's United States' operations.
4. 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.
5. 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.
6. As of 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.
7. In Australia, Exactech's products are distributed by Exactech Australia Pty Ltd (Exactech Australia). Exactech Australia is an indirect subsidiary of Exactech. Exactech Australia is not in any form of external administration.
8. 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.
9. A class action was commenced against Exactech Australia and Exactech in this Court in September 2024, being proceeding NSD 1224 of 2024 (Class Action).
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 subsequently ordered that the five Chapter 11 proceedings be consolidated for administrative purposes under Case No. 24-12441.

C.1. Overview

1. Whether the interim relief sought by Mr York should be granted turned on first, the strength of Mr York's case for recognition of the Chapter 11 Proceeding as a foreign main proceeding and the relief likely to be granted at the hearing, and second, whether the interim relief was urgently needed to protect the assets of the debtor or the interests of the creditors.

C.2. Relevant Principles

1. Article 17 of the Model Law provides that a foreign proceeding shall be recognised if it meets the following four requirements:
2. the foreign proceeding is a proceeding within the meaning of subparagraph (a) of art 2;
3. the foreign representative applying for recognition is a person or body within the meaning of subparagraph (d) of art 2;
4. the application meets the requirements of paragraph 2 of art 15; and
5. the application has been submitted to the court referred to in art 4.
6. Article 2(a) of the Model Law 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;
7. Article 2(d) of the Model Law 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.

C.3.1. Requirements of the Model Law

1. In order to establish that the Chapter 11 Proceeding should be recognised as a foreign main proceeding under the Model Law, it will be necessary for Mr York at the final hearing to satisfy the requirements of art 17 and art 15 of the Model Law (as modified by s 13 of the Act) and Div 15A of the Corporations Rules.
2. I address each of those requirements below.

C.3.2. Article 17 requirements

1. As to art 17(1)(a), I was satisfied for the purposes of the interim application that a Chapter 11 Proceeding is a foreign proceeding for the purposes of art 2(a) of the Model Law.
2. Chapter 11 proceedings have been recognised by this Court as meeting the definition in art 2 of the Model Law in each of the following cases: Moore as Debtor-in-Possession of Australian Equity Investors v Australian Equity Investors [2012] FCA 1002 at [12] (Emmett J); Young, Jr, in the matter of Buccaneer Energy Limited v Buccaneer Energy Limited [2014] FCA 711 (Jagot J); Kapila, in the matter of Edelsten (2014) 320 ALR 506; [2014] FCA 1112 at [32] (Beach J); Bradley, Astora Women's Health, LLC v Astora Women's Health, LLC (No 2) [2022] FCA 1268 (Astora (No 2)) at [32] (Lee J).
3. As Lee J observed in Astora (No 2) at [35]: Chapter 11 … is a foreign proceeding within the meaning of Art 2(a) of the Model Law. One might have thought this was obvious but, perhaps superfluously, Mr George Panagakis, an American lawyer, affirmed an affidavit representing his view of United States law. In any event, I am satisfied that the Astora Chapter 11 Proceeding is a foreign proceeding because: (1) it is a judicial proceeding, subject in all respects to the supervision of the Bankruptcy Court; (2) it is a collective proceeding, in that it considers the rights and obligations of all creditors …; (3) it is a proceeding in a foreign state, being the United States; (4) it is being conducted pursuant to "a law relating to insolvency" … Chapter 11 is a comprehensive, federal legal framework for the purpose of reorganisation and liquidation; and (5) the assets and affairs of the debtor during the proceeding are subject to control or supervision by the Bankruptcy Court. (Citations Omitted).
4. As to art 17(1)(b), I was satisfied that Mr York has been specifically appointed by the US Bankruptcy Court to act as the foreign representative of Exactech for the purposes of this recognition proceeding under the Model Law and therefore he comes within the definition of a "foreign representative" in art 2(d) of the Model Law.
5. As to art 17(1)(c), which requires evidence of the existence of the foreign proceeding and appointment of the foreign representative, I was satisfied that Mr York has been expressly authorised by the US Bankruptcy Court, by the order made on 6 December 2024, to act as a foreign representative for the Chapter 11 Proceeding. Further, I note that pursuant to art 16(2), I am entitled to presume that documents submitted in support of the Model Law application are authentic.
6. As to art 17(1)(d), I was satisfied that this Court, by reason of s 10(b)(i) of the Act, is a Court for the purposes of art 4 of the Model Law, for the Chapter 11 Proceeding.

C.3.3. Article 15 as modified by s 13

1. Art 15(1) of the Model Law allows a foreign representative to apply for recognition of a foreign proceeding.
2. Article 15(2) requires that an application for recognition shall be accompanied by:
3. a certified copy of the decision commencing the foreign proceeding and appointing the foreign representative; or
4. a certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative; or
5. in the absence of evidence referred to in subparagraphs (a) and (b), any other evidence acceptable to the Court of the existence of the foreign proceeding and of the appointment of the foreign representative.
6. The requirements of art 15(2) are picked up by art 17(1)(c) and are addressed above at [25].
7. I was satisfied for the purposes of the interim application that the art 15(3) requirement, as modified by s 13 of the Act, had been established. Mr York stated in his affidavit that to his knowledge, Exactech is not subject to any proceedings in Australia involving Exactech under the Corporations Act 2001 (Cth) (Corporations Act), the Bankruptcy Act 1966 (Cth), any appointment of a receiver or a controller over the property of Exactech or any proceeding under Chapter 5, s 601CL or Schedule 2 of the Corporations Act with respect to Exactech, other than the Class Action and thirteen proceedings that had been commenced by group members.

C.3.4. Recognition as a foreign main proceeding

1. In the Originating Process, 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. Article 2(b) defines 'foreign main proceeding' as a foreign proceeding taking place in the State where the debtor has its centre of main interests (COMI).
2. Article 16(3) relevantly provides that in the absence of proof to the contrary, a company's COMI is presumed to be in the State in which its registered office is. Exactech's registered office is located at 2320 NW 66th Ct, Gainesville, Florida, United States 32653, USA.
3. Rebuttal of the presumption for which art 16(3) provides requires factors which are both objective and ascertainable by third parties, including creditors: Kapila at [53] (Beach J).
4. I was satisfied that there is a compelling basis to find that it is likely that at the final hearing of the Model Law application the Court will find that the COMI of Exactech is in the United States, for the following principal reasons, (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.

C.3.5. Conclusion as to likelihood of recognition

1. Article 17(1) provides that a foreign proceeding must be recognised (subject to art 6) if all the requirements of art 17(1) are satisfied. 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.
2. Nothing in the facts of the present case suggests a potential application for art 6.
3. For the reasons outlined above at [19] to [36] , I was satisfied that Mr York has established a strong case for recognition of the Chapter 11 Proceeding as a foreign main proceeding under the Model Law.

C.3.6. Interim relief

1. Article 19 of the Model Law relevantly provides: Article 19. Relief that may be granted upon application for recognition of a foreign proceeding
2. From the time of filing an application for recognition until the application is decided upon, the court may, at the request of the foreign representative, where relief is urgently needed to protect the assets of the debtor or the interests of the creditors, grant relief of a provisional nature, including: (a) Staying execution against the debtor's assets; (b) Entrusting the administration or realization of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court, in order to protect and preserve the value of assets that, by their nature or because of other circumstances, are perishable, susceptible to devaluation or otherwise in jeopardy; (c) Any relief mentioned in paragraph 1 (c), (d) and (g) of article 21 below. …
3. The court may refuse to grant relief under the present article if such relief would interfere with the administration of a foreign main proceeding.
4. Mr York sought interim relief pursuant to art 19(1)(a) of the Model Law in the following terms which are substantially similar to the relief that I ordered in Bradley, Astora Women's Health, LLC v Astora Women's Health, LLC [2022] FCA 1195 (Astora (No 1)): [T]hat until the application for relief under Art 17 of the Model Law made in the originating process in this proceeding is decided, or until further order of the Court: (a) any and all execution against the assets of the Defendant, Exactech, Inc. (Exactech) be stayed; (b) no person within the jurisdiction of the Court other than Exactech may transfer, encumber or otherwise dispose of, or take possession of or otherwise recover, any assets of Exactech; (c) no proceeding against Exactech, or in relation to any of its property, may be begun or proceeded with, save that for the avoidance of any doubt the stay does not prevent the following steps occurring in Federal Court of Australia Proceeding NSD 1224 of 2024 (Class Action): (i) the issue of any notice(s) to group members (notices) regarding group member opt out, registration of group member interest, mediation and any settlement approval that may ultimately be sought; (ii) applying for leave to issue, and issuing subpoenas for production for the purpose of identifying group members, and /or obtaining their contact details for the distribution of notices; and (iii) preparation for and participation 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; (d) no receiver may be appointed to any of the assets of Exactech, nor may any step be taken to enforce any security over any of the assets of Exactech in Australia.
5. The only material difference to the interim relief granted in Astora (No 1) was the addition of the qualifications in (c)(i)-(iii). Ms E L Beechey of counsel who appeared for Mr York confirmed that these qualifications had been included at the request of the plaintiff in the Class Action.
6. Relief has previously been granted by this Court pursuant to art 19 of the Model Law: see Tucker, in the matter of Aero Inventory (UK) Limited v Aero Inventory (UK) Limited (2009) 76 ACSR 19; [2009] FCA 1354 (Lindgren J); Hur v Samsun Logix Corporation [2009] FCA 372 at [4] (Jacobson J); Asafuji (in his capacity as the Foreign Representative of the Sanko Steamship Co., Ltd) v The Sanko Steamship Co., Ltd [2012] FCA 1154 (Bromberg J); Astora (No 1).
7. Mr York submits that the interim relief is appropriate for the following reasons:
8. Exactech is the second defendant in the Class Action;
9. other individual claims have been brought against Exactech Australia, to which Exactech could potentially be added as the manufacturer of the devices;
10. Exactech has received correspondence flagging potential claims from Australian surgeons and hospitals in respect of particular patients, and from some patients;
11. recognition is likely to be granted. The effect of recognition will be a stay of proceedings. Generally speaking, such a stay would prevent the commencement or continuation of proceedings and enforcement action without leave of the Court;
12. the interim relief is directed to achieving on an interim basis, the ultimate purpose of the recognition application, which as stated by Mr York is: to implement a stay of class action litigation against Exactech in Australia … and to prevent any other litigation being commenced in Australia against Exactech, with the intention that the applicant in that litigation, group members and other claimants/creditors can file claims in Exactech's bankruptcy instead of continuing with or commencing litigation. In essence, recognition would stay the existing proceeding in Australia, and prevent any further litigation being commenced, the defence of which would be more expensive and burdensome for Exactech's bankruptcy estate than the filing and handling of those claim as claims in the bankruptcy, and therefore would ultimately reduce the assets available to meet those claims.
13. Exactech's attention and resources should not be diverted away from attempting to achieve a restructuring plan by ongoing or new litigation in Australia in the period prior to the recognition hearing;
14. the recognition hearing is likely to occur within a relatively short time as it is listed for hearing at 10.15 am on Thursday, 6 February 2025;
15. the stays sought are interim stays and are unlikely to cause prejudice to creditors. In particular, the interim stays are unlikely to cause prejudice to the plaintiff or the class members in the class action, or to potential claimants in proceedings yet to be commenced; and
16. an order is sought that any party affected by the orders have liberty to apply on five business days' notice, further diminishing the likelihood of any ongoing prejudice to creditors.
17. I accepted, for the reasons advanced by Mr York, that there was a material risk that the assets of Exactech might be diminished and the interests of the creditors of Exactech might be prejudiced if a stay were not granted in the period prior to the recognition hearing. Further, for the reasons outlined at [19] to [36] above, I considered that the case for recognition of the Chapter 11 Proceeding at the recognition hearing is strong.

D.1. Relevant Principles

1. Rule 15A.6(1) of the Corporations Rules provides that a foreign representative is required to send a notice of the filing of an application for recognition (in accordance with Form 20) to each person whose claim to be a creditor is known to the foreign representative and to publish that notice in a daily newspaper circulating generally in the State or Territory where the body has its principal, or last known, place of business.
2. Rule 15A.7(1) of the Corporations Rules relevantly provides that if the Court makes an order under art 19, such as the interim stay sought on this application, the foreign representative must send a notice of the making of the order (in accordance with Form 21) to each person whose claim to be a creditor is known to the foreign representative, and to publish the same notice in a daily newspaper circulating generally in the State or Territory where the body has its principal, or last known, place of business.
3. Rule 1.8 of the Corporations Rules provides that the Court may give directions in relation to the practice and procedure to be followed in a proceeding.
4. In Astora (No 1), I made the following observations at [61] about a composite notice, that is a combined Form 20 and Form 21 notice, to be included in a customised notification regime that was approved in that case: It provided in a single document a consolidated summary of the information required to be provided to creditors with respect to two interrelated matters, the filing of an application for recognition of a foreign proceeding and the making of an interim order under the Act. I was satisfied that a single document was likely to give rise to less potential confusion and uncertainty than two separate documents and the additional note would assist in making clear to creditors that this proceeding was concerned with the recognition of the foreign Astora Chapter 11 Proceeding rather than progressing their claims by lodging proofs of debt or taking other action to recover the amounts that they contend are owed to them.

D.2. Consideration

1. The orders that I made for a customised notification regime at the request of Mr York in this proceeding were similar to those that I made in Astora (No 1).
2. Mr York sought orders for directions that would, in summary:
3. 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
4. dispense with the requirement to advertise the recognition application in a daily newspaper in circumstances where the Chapter 11 Proceeding is to be widely advertised; and
5. modify the form of notification by combining and modifying the Form 20 and Form 21 formats to create a customised notification that seeks to clarify the difference between the Australian recognition application and the US Chapter 11 Proceeding and provides potential creditors with appropriate contact details in relation to each.
6. In this case, the proposed modifications to the text of Form 20 and Form 21 are more wide-ranging than was the case in Astora (No 1) but they have the same purpose of seeking to make the position clear to potential creditors.
7. I was satisfied, as generally submitted by Mr York, that the notification orders sought in this case are an appropriate replacement for the notification regime in r 15A.6(1) and r 15A.7 of the Corporations Rules, for the following reasons.
8. First, the Chapter 11 Proceeding is being widely advertised in Australia by way of a media campaign across network television, print, digital and social media between now and 27 January 2025, in order to bring it to the attention of all potential creditors.
9. Second, given the narrow purpose of the Australian recognition application, there is a real prospect that any attempt to notify potential creditors more widely than is proposed, and in particular, any attempt to notify each of the registered class members directly, would cause confusion, as recipients may not understand that they do not need to take steps in relation to the Australian recognition proceeding in order to exercise their rights in the Chapter 11 Proceeding.
10. Third, the combining of the Form 20 and Form 21 formats into a single notice seeks to avoid potential confusion and waste caused by sending two simultaneous but separate notifications to each recipient.
11. Fourth, the changes in wording from the Form 20 and Form 21 are aimed at increasing the likelihood of the notice being understood by non-lawyers, minimising unnecessary concern regarding the effect of the Model Law application and avoiding inquiries to the solicitors acting for Exactech in the Model Law application which are more appropriately directed either to Kroll as noticing agent 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. Fifth, creditors who wish to pursue action in Australia despite the recognition and accompanying stay will be able to approach this Court for leave to proceed against Exactech. The order sought on both the interim recognition application and the final recognition application granting liberty to apply to any person affected by the orders will indicate to potential creditors who become aware of the Australian recognition orders that they have a right to approach the Court despite the stay.
13. Sixth, the requirement to publish advertisements in daily newspapers can be dispensed with in this case because, as submitted by Mr York, (a) the evidence of Mr York is that the Chapter 11 Proceeding is to be widely advertised in this country; (b) 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 should not be expected to be reviewing the notices section of newspapers for such notices; (c) such advertisements appear in the print copies of The Australian and the Australian Financial Review but not on their websites; (d) 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, and (e) the responsibility for notifying the group members in the Class Action of the Chapter 11 proceeding rests with the applicant's solicitors and a single line of communication with them will avoid any potential confusion that might arise if the communications they receive from the applicant's solicitors are not in identical terms to the text of the advertisements that would otherwise be placed by Mr York in The Australian and the Australian Financial Review.

E. Disposition

1. For the foregoing reasons, orders substantially in the form sought by the plaintiff in the interlocutory process were made. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.