The Federal Court has given troubled rural lender Gippsland Secured Investments another day to put forward a solid case for it to be salvaged before it faces a wind down by the corporate regulator.
It is the second reprieve for the non-bank lender, which was forced to freeze $150 million of local investor money in July following a review of its lending book.
On Thursday, the corporate regulator made a last-minute move to wind up the company, claiming a rescue group has failed to come up with a sufficient proposal to keep the company afloat.
The rescue group told the court on Friday it had come up with $300,000 in additional funds to keep the company afloat for another two weeks.
Despite this, the trustee said the rescue package was still "utterly inadequate" given the company remained "$7 million under" in terms of impairments.
"The company is insolvent," counsel for The Trust Company, Alexander Street, SC, told the court. "If that is the case, it should not incur one cent." Mr Street also raised the question of whether the extra $300,000 was a gift, or whether it would need to be repaid. "Where is it going? Who is going to receive it?" he asked.
Justice Kathleen Farrell said aspects of the rescue proposal needed to be firmer and gave the rescue group until Monday to provide more details.
During proceedings, the trustee tabled a number of documents in court as evidence of "incompetence" by management in the lead-up to the fund freeze.
Mr Street described Gippsland Secured Investments' balance sheet as a "moveable feast" due to the number of inconsistencies relating to the company's impairments.
But Justice Farrell would not accept all of the documents, ruling in favour of the rescue group, which claimed it was not in a position to respond to claims of "dishonesty".
Any move to put GSI into receivership could cast doubt on whether the debenture firm's 3500 mostly Gippsland-based investors will be able to recover all of the $150 million they have pumped into the company.
The Australian Securities and Investments Commission has told the Federal Court that it has "substantial concerns" about the $7 million rescue package and that it believed it should be wound down.
The hearing continues on Monday.