Treasurer Scott Morrison allowed Moon Lake's $280 million purchase of Tasmania's VDL Farms to go ahead after it agreed to spend a further $100 million upgrading the dairy operation and creating an additional 95 jobs.
But accounts filed with the corporate regulator last month suggest Moon Lake's promises to the Treasurer remain a long way from being realised, after it posted accumulated losses of $60 million over the last two years.
"The company was in breach of its loan covenant," the accounts to December 31 reveal.
Moon Lake chief financial officer Neil Perkins said the covenant breach was due to an operating loss of $1.3 million last year, while noting the company had also written down the value of its dairy assets by $50 million.
When a covenant is breached the loan becomes a current liability and can be called in by the bank at short notice. If this were to happen the accounts reveal Moon Lake would have a $55 million shortfall.
Mr Perkins said Moon Lake was now in "good standing" with its bankers and the loan had been reclassified as a non-current liability, given the company was confident of returning to profit this year due to a pick-up in milk prices.
Moon Lake must repay or refinance the loan by June next year.
Its financial difficulties shed new light on the resignation of all five independent directors at the company in late April.
At that time they cited differences with Moon Lake's owner, Lu Xianfeng, accusing him of starving the business of funds and not making adequate preparations for the dry weather being experienced in Northern Tasmania.
But the accounts suggest there are also concerns around the financial health of the business and if Mr Lu will continue to enjoy the confidence of his bankers.
The unravelling of Moon Lake comes just two years after Mr Lu swept into Tasmania promising to revitalise the dairy industry, partly through $100 million in capital investments to upgrade VDL's 25 dairy farms.
Mr Perkins said the company spent $4.2 million last year on capital upgrades.
Treasury official Victoria Anderson conceded in Senate Estimates last month the commitments, which helped Mr Lu win foreign investment approval, were not legally binding but reflected on the reputation and character of the investor.
"[They] could be taken into account later on, should the same investor want to make another investment," she said.
The other initiative championed by Mr Lu on buying VDL Farms was weekly flights of fresh milk from Hobart to the regional city of Ningbo, outside Shanghai.
This was launched with much fanfare by Moon Lake, Qantas and Tasmanian Premier Will Hodgman in October 2016 but is yet to happen.
The weekly flights to China were used to partially justify a $40 million upgrade to Hobart's airport, which was completed in February.
The Australian Financial Review has previously revealed Mr Lu, who made his fortune manufacturing window blinds and owns the Kresta brand, made the $280 million purchase after just one visit to the farms and without any significant due diligence.
- This story first appeared in the Australian Financial Review