However, the Overseas Investment Office still approved the mortgages, retrospectively, and allowed them to be enforced so the land could be sold - something likely to occur at an auction in Queenstown today.
As reported last month, the OIO gave the station's owners approval to enforce mortgages on two residential sections on the station, across Lake Wakatipu from Queenstown.
The sections, which have a part share of 34ha on the development, are part of a planned $50 million luxury lodge and residential subdivision.
It can now be revealed
Walter Peak Station Trust (WPST), the vehicle through which the 26,000ha
station is owned, lent Mr Nielsen's Walter Peak Developments $3.89 million when it hit financial trouble in mid-2008.
The loan was made over the transfer of the two residential sections to Aviation Properties NZ, another Nielsen-associated entity, and was secured by mortgages.
Walter Peak Developments defaulted on the loan and went into receivership in December 2008, starting a domino effect which collapsed Strategic Finance in 2010.
WPST's application to the OIO - released to the Otago Daily Times under the Official Information Act - argued the decision to make the loan and mortgages was a ''prudent commercial decision at the time'' and did not need consent because the interest-free loan was to be repaid within six months.
However, an assessment report prepared by OIO team manager David Viviers, which recommended the application be granted, said it was the mortgages which required consent, not the loans.
''While the mortgages may have been expected to last for six months, they secured the loan and remain in place until it has been repaid or the mortgages are otherwise discharged.
''As such, the OIO considers that the mortgages required consent before they were entered into.''
The Overseas Investment Act states rural land of more than 5ha is deemed ''sensitive'', and an investment needs consent if the interest, including mortgages, exceeds a term of three years.
Alexandra-based lawyer John Williamson, of Checketts McKay Law, said in WPST's application: ''If the Walter Peak Station Trust did not provide the loan to WPD, WPD would lose its funding from Strategic Finance which would mean the end of progress by WPD on the development.
''By providing the loan, WPST considered that it would resolve the WPD funding crisis and enable the development to proceed to completion.''
Mr Viviers' report said the OIO was satisfied that without the loan WPD would probably have gone into receivership earlier and been unable to complete spring plantings.
The applicants demonstrated financial commitment by making the loan and entering the mortgages, the report said.
Since the group bought Walter Peak Station for an undisclosed sum in 1998, $3 million has been spent on farm development capital works.
WPST's application estimated a further $530,000 would be spent on the development over the next five years, primarily on indigenous revegetation work - but completion of the lodge project depends on ''whether the global economy improves and it becomes economically viable''.
A variation has been sought for the vegetation plan to find an ''economically viable'' alternative and after the original plantings, thought to be one of the district's largest revegetation projects at 309,000 plants, ''extensively failed''.
The station's current beneficial owners are Israeli billionaire Morris Kahn, his son David, and long-time business partner Shmuel Meitar.
Forbes magazine says self-made software investor Morris Kahn made his fortune - estimated at $US1 billion - through his investment in Amdocs, a customer-relationship management-and-billing software firm for large telecom outfits.
-by David Williams
