They threatened to resign if Mr Hubbard did not quit as chairman, raising the likelihood South Canterbury's crucial international financial rating would be further downgraded and the finance giant would "fail in a very short time", the Treasury told Minister of Finance Bill English on May 18 last year.
Treasury estimated if South Canterbury was to fail, the Government faced a loss of $721 million.
In October 2009, Dunedin businessman Stuart McLauchlan, Denham Shale of Auckland, and Queenstown-based businessman Bill Baylis were appointed to South Canterbury's board as independent directors, part of massive changes to board and senior management in an attempt to restructure debt-laden South Canterbury.
In a deluge of correspondence released by Treasury this week, it told Mr English the three independent directors wanted Mr Hubbard off the board or they would resign.
"South Canterbury Finance faces the potential resignation of all three independent directors in the event SCF's chairman [Allan Hubbard] does not agree to resign at the SCF board meeting scheduled for 5pm tonight," the aide-memoire said.
"If the [three] independent directors resign, we expect SCF will fail in the very short term," the summary said.
Mr Hubbard subsequently stepped down, and about a fortnight later it was announced he would be made president for life.
Mr English was told South Canterbury's newly appointed chief executive Sandy Maier, a specialist in turning around distressed companies, and Messrs McLauchlan, Shale and Baylis held concerns over related-party loans from South Canterbury to companies controlled by Mr Hubbard, and they had failed in a previous attempt to convince Mr Hubbard to resign.
They cited Mr Hubbard as trying to exert "more influence" over daily running of the company.
Although South Canterbury was not placed in receivership until August 31, the note told Mr English that Treasury thought statutory management might be a "more appropriate solution" than receivership because of the "significant and complex" related-party lending exposure between South Canterbury and other "Hubbard controlled entities".
Treasury said it was contacting the Securities Commission that day to initiate discussion on appointment of a statutory manager - appointed by the Government on June 20.
International ratings agency Standard and Poor's had downgraded South Canterbury in early May and its management expected a further downgrade to be announced in late May or early June.
"A resignation announcement of the independent directors may bring an announcement [of a further downgrade] from S&P's forward," Treasury said.
If there was an S&P downgrade, it would "exacerbate the current liquidity/funding challenges facing SCF".
