Government ministers knew Solid Energy was paying out multi-million dollar performance bonuses to its executives while the state-owned company was going down the drain, Labour says.
It's been revealed that just eight months ago $11 million was handed out in bonuses, and 12 months before that the figure was $12.5m.
The coal mining company is now carrying a $389m debt and faces financial ruin unless it can work out a rescue strategy with Treasury and the banks.
Labour's state owned enterprises spokesman, Clayton Cosgrove, says ministers knew in 2011 the company was in serious trouble, and the board would have reported the bonuses to them.
But State Owned Enterprises Minister Tony Ryall did nothing.
"The board had to inform him it was paying out the bonuses," Mr Cosgrove told NZ Newswire.
"Why on earth didn't Tony Ryall jump up and down and make it clear to the board that he totally disapproved of paying multi-million dollar bonuses to executives when the company was going down the toilet?"
Mr Cosgrove, an associate finance minister in the previous Labour government, says Mr Ryall had the power to stop the bonuses.
"If the board had told him it was going to do as it liked, he had the ability to say `no you won't - you're gone'," he said.
"Ministers can haul SOE boards in and they can sack the boards."
Mr Cosgrove says the government totally failed to monitor Solid Energy and didn't know it was in trouble until it decided to partially privatise it.
That was when the Treasury started looking at it and discovered what was happening.
"It's nonsense to say they didn't know there were problems before that - the coal price shifted a few years ago, they should have called in the board and asked what its plans were."