It approved the immediate payment of 1.6 billion New Zealand dollars (1.12 billion US dollars) to about 35,000 investors holding debentures and bonds in South Canterbury Finance, which went into receivership after all-night rescue negotiations failed.
Finance Minister Bill English said after briefing the cabinet the quick payout would "ensure minimal disruption" to the economy, which is in a stumbling recovery from recession.
He told a news conference that the government would get back most of the money over the next few years as the receivers sold assets of South Canterbury, which would continue to manage over 1 billion New Zealand dollars' worth of business loans.
Claiming to have achieved the best outcome from a sad situation, English said, "Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy."
An additional 175-million-New-Zealand-dollar government loan to receivers to repay outstanding debts would ensure there was no need for a fire sale of South Canterbury's assets, he said.
The government was obliged to give investors back their money under a Retail Deposit Guarantee Scheme introduced after about 60 finance companies collapsed in the world economic crisis.
He said that immediate repayment would save taxpayers about 100 million New Zealand dollars because the government would not be liable for future interest payments.
English said the company's 82-year-old founder, Allan Hubbard and his wife Jean, who owned most of South Canterbury, and several thousand stockholders with about 150 million New Zealand dollars worth of preference shares, would get nothing.
Hubbard, a philanthropist, said that the receivership was an "unnecessary kneejerk bureaucratic response."
He claimed that he could have overcome the company's problems had hen ot been sidelined. //DPA
