The Treasury says it was aware of Mascot Finance's financial situation when it accepted its application to be covered by the deposit guarantee scheme.
Mascot was placed in receivership yesterday by its trustee Perpetual, after it became clear a loan of $10 - $20 million to a Queenstown commercial property development, would not be repaid.
Perpetual chief executive Louise Edwards says that loan tipped the balance.
The company owes about $70 million to 2557 investors, but its failure triggers what will be the first call on the Government's retail deposit guarantee scheme, which was introduced in October last year.
Mascot reported a loss of more than $7 million in the year to March 2008.
It stopped taking deposits from September last year and was reducing its loan book and essentially being wound up.
Treasury Secretary John Whitehead says officials were aware of that, but it still met the criteria for the guarantee.
A partner at the receivers, Paul Munro of Deloitte, says the company is very much the victim of the downturn in the property market.
