TGIF 28 November 2025 - At what cost: Federal Court affirms approval rules for solicitor costs agreement

This week’s TGIF considers the recent case of Ashby Mining Limited, in the matter of Ashby Mining Limited (In liquidation) v Anderson [2025] FCA 1246, where the Federal Court approved a costs agreement with solicitors extending over three months, and a confidentiality order over the agreement.

Key takeaways

• The Federal Court’s approval of a proposed agreement under section 477(2B) of the Corporations Act 2001 (Cth) is not an endorsement of the agreement. Instead, it is a recognition of a liquidator's commercial judgement and confirmation that the liquidator has not acted imprudently or engaged in bad faith or an error of law.
   
• Liquidators must ensure that the terms of a proposed costs agreement are clear, reasonable and provide a net benefit to the company and its creditors. A prolonged liquidation will be reasonable where it allows for the proper realisation of the company’s assets through litigation.
   
• Confidentiality orders may be granted to protect commercially sensitive information in the agreement, particularly when disclosure could disadvantage a company and its creditors, and such orders are unopposed by the creditors.

Background

Ashby Mining Limited (Ashby Mining) was a mineral exploration and project development company. Prior to administration, it engaged in exploring and developing gold mining projects in Papua New Guinea and Australia. 

On 23 August 2024, receivers and managers were appointed over Ashby Mining and its related entities. On 24 August 2024, Mr Albarran and Mr Shaw were appointed as voluntary administrators over Ashby Mining and related entities, and were subsequently appointed as liquidators of Ashby Mining on 6 November 2024. 

The liquidators identified over $155 million in creditor claims. That amount included $19,763,721 to secured creditors, $794,202 to priority creditors, $55,935,415 to unsecured creditors and $78,750,000 to contingent creditors. Mr Albarran ultimately expressed a view that Ashby Mining: 

• had been in severe financial distress and insolvent for several years;
   
• had been trading at a loss for a significant period;
   
• had no operating revenue;
   
• owed debts, the majority of which were aged; and
   
• needed additional capital to meet Ashby Mining’s needs. 

The liquidators investigated potential claims available to Ashby Mining against the directors, including for breaches of directors’ duties and insolvent trading.  Mr Albarran assessed that the prospects of the claims and potential for recovery were good. 

Liquidators seek approval

On behalf of Ashby Mining, the liquidators sought approval under section 477(2B) of the Corporations Act 2001 (Cth) to enter into a conditional costs agreement with Watson Webb, a law firm. 

Approval was required because the agreement term extended beyond three months. If granted, the liquidators sought to prosecute the potential claims against the directors and facilitate the proper realisation of Ashby Mining's assets for the benefit of the company and its creditors. 

The liquidators also sought a non-publication and suppression order over the agreement on the basis that its disclosure could provide an unfair advantage to the defendants in the litigation.

Decision

The Court approved entry into the conditional costs agreement after consideration of the following:

• The terms of the agreement were clear, the costs were reasonable, and Watson Webb appeared qualified to carry out the engagement. 
   
• Entry into the costs agreement was clearly within the proper exercise of liquidators’ powers, and there was no evidence of an error in law or principle, a lack of good faith, or doubts concerning the prudence of the proposal. 
   
• The fact that the costs agreement was conditional further evidenced it being in the creditors’ interests. 
   
• Despite prolonging the liquidation, a costs agreement would facilitate litigation in the interests of creditors and a beneficial administration. Moreover, such litigation would allow for a possible dividend to creditors. 
   
• The creditors were notified of the application, and no person opposed the approval being granted. 

The Court also granted the confidentiality order sought pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth), agreeing with the concerns raised by the liquidators regarding disclosure of the costs agreement.

Comment

This decision reaffirms that courts will not consider an approval under section 477(2B) to be a rubber stamp process. Rather, courts will assess whether the liquidators, in proposing an agreement, have adhered to their statutory duties and acted in the best interests of the company and its creditors.

Practically, insolvency practitioners should maintain detailed records of their decision-making processes, including the rationale for entering into costs agreements and the potential benefits to creditors. Where possible, proposed agreements should also be clearly communicated to creditors beforehand. 

The decision also underscores the utility of confidentiality orders in protecting sensitive information. Liquidators should carefully assess whether disclosure of contractual terms could harm the company’s position in litigation or provide an unfair advantage to competitors. Where appropriate, they should seek confidentiality orders to safeguard such information.