The Government's role appears increasingly crucial: to pick up part of the debt this week or let South Canterbury Finance sink and pick up the pieces in the months ahead.
An outright $1.7 billion receivership of mainly southern-based loans - and subsequent asset fire sales - would have a devastating effect on the South Island's economy.
If the Government is first to financially support South Canterbury, that would negate receivership and give confidence to other parties to inject capital into other divisions of South Canterbury.
However, any deal could depend on the Government's taking on the bad debt division, which could have estimated losses of up to $250 million.
The Cabinet will today discuss the South Canterbury situation.
It is understood to be considering a bailout deal, possibly using up to $600 million of taxpayer money.
During the weekend, South Canterbury Finance's management was negotiating with "a handful" of unnamed, potential equity partners, South Canterbury chief executive Sandy Maier said in an interview.
"There are [potential] multiple partners; we'd like it all to go together," he said of speculation on the sale or partial sales of its three recently split divisions of its "good bank" of secure loans, "bad bank" of stressed loans and its separate investment division in other companies.
Finance Minister Bill English said depositors' interests would be protected, as the Government had a $954 million provision under its deposit guarantee scheme for failed finance companies, but he would not comment on what action the Government might be considering to safeguard South Canterbury's future.
South Canterbury has a waiver from its trustees to trade below its usual cash-carrying conditions until tomorrow, but unless it comes up with a cash injection - understood to be $400 million to $600 million - Trustee Executors would have to withdraw the waiver and place the company in receivership.
Craigs Investment Partners broker Peter McIntyre said yesterday the Government could take a stake and take over part of the "bad bank", which would underpin a "good bank" sale to other parties, The second option was for it to let South Canterbury go into receivership and take on both the good and bad banks; paying out under its retail deposit guarantee scheme, later recouping some losses through asset sales, although many of the assets would have declined in value.
"Either way, it's creating moral hazard. Plenty of other finance companies which went to the wall could have used a bailout," Mr McIntyre said.
South Canterbury Finance, with assets of almost $2 billion, is four times larger than New Zealand's two largest failed finance companies, Bridgecorp and Hanover.
The company's plight was highlighted on Friday when nine other separate companies and trusts of its founder, Allan Hubbard, were criticised in a scathing report by Government-appointed statutory managers.
The report outlined understated investment values, poor governance, tens of millions of dollars lost and statements on investments and cash balances which did not exist.
A separate Serious Fraud Office probe into the same stable of Hubbard companies and trusts is under way, but played no part in last week's announcements.
While South Canterbury Finance is not under statutory management, or SFO investigation, Mr Maier said while Friday's disclosures on Mr Hubbard's other entities "had not drawn South Canterbury in", he admitted the managers' report "had at least confused and severely worried investors".
When asked whether the crucial investor reinvestment roll-over rates had hit his preferred target of 50%-55%, Mr Maier said they had been "healthy" and there was "no run [on funds] and no non-roll overs with people clambering to get out".
He was noncommittal on reports the company was in discussions late last week with Treasury and the Crown about a bail-out, saying that only the company was maintaining regular contact, as required under the Crown's extended deposit guarantee scheme.
Mr Maier confirmed South Canterbury, which holds more than $1.7 billion of investor funds, was at present holding only about $10 million cash-in-hand to make interest payments to investors, which would cover about a week of payments.
However, he stressed no payments had ever been missed and cash in recent months had swung from having between $5 million to $125 million, with cash coming in "on any given week" between $10 million to $20 million.
