Hanover Finance is taking legal action against Allied Farmers after the rural services company refused to pay about $5 million to the failed finance company.
The payment was meant to be made as part of Allied Farmers' deal to buy Hanover and United Finance's loanbook for $400 million in December last year.
But in June this year, Allied Farmers cancelled the contract and refused to pay the money, saying Hanover had committed serious breaches of the agreement when assigning its assets to Allied Farmers.
Chapman Tripp, the law firm acting for Hanover Finance, on Wednesday served legal proceedings against Allied Farmers to demand the money be paid.
A court hearing has been set down for February next year.