The New South Wales division of the Liberal Party took out two multi-million-dollar loans with Westpac in little over a year as it struggled with deep financial problems in the lead-up to the federal election campaign.

Key points: NSW Liberal Party took out out two multi-million dollar loans from Westpac in little over a year

NSW Liberal Party took out out two multi-million dollar loans from Westpac in little over a year The NSW Division's funds were drained by a court challenge and corporate donations have dried up

The NSW Division's funds were drained by a court challenge and corporate donations have dried up The NSW Division of the party maintains its solvency in an issued statement

Internal documents sighted by Four Corners reveal that the embattled Liberal Party division took out the first $7 million loan with Westpac prior to the NSW state election in March 2015, secured against anticipated public funding from the NSW Electoral Commission (NSWEC).

But that funding of $4.4 million was withheld by the NSWEC amid concerns that donations, made through the Liberal Party's Free Enterprise Foundation, had possibly breached donation laws.

The parlous state of party finances forced the NSW division of the Liberal Party to inform the NSWEC in March it would have to retrench staff if the $4.4 million was not paid.

In April, it took out another loan with Westpac, this time secured against anticipated public funding flowing from this year's federal election.

The financial woes in the NSW division came as Prime Minister Malcolm Turnbull personally made a reported contribution to Liberal Party coffers of more than $2 million in the last weeks before the July 2 federal poll.

At the same time, the Liberal's NSW division was sending increasingly desperate letters, including from NSW Liberals state director Chris Stone, imploring members to "step up and donate $10".

"Even $5 would make a difference," finance director and former federal MP Peter McGauran wrote to party members the day before the election.

Party finances drained in string of expenses

According to multiple NSW Liberal Party sources, the party's finances had been hit hard by a string of large expenses.

The by-election for Joe Hockey's traditionally safe seat of North Sydney last November, won by NSW party president Trent Zimmerman, cost as much as $800,000, or four times the usual amount for a by-election party sources said.

NSW Liberal Party funds have also been drained by an expensive Supreme Court challenge by party members aggrieved by the moderate-dominated state executive's use of "special powers" to wind up branches with a conservative leaning.

One leading party operative said federal election campaign financing was hampered also by Liberal Party members refusing to pay membership dues, make donations or help out on election day amid disquiet about the ousting of Tony Abbott and anger at rampant factionalism in the party.

Former federal Liberal Party honorary treasurer Michael Yabsley told Four Corners the NSW division of the party was in the midst of a "civil war" and called for federal intervention.

"In NSW, the total membership of the Liberal Party is about 8,000. I would say half of those are involved mainly for factional reasons," he said.

"The Liberal Party has to democratise. It has to overcome the problem of the ludicrously small membership base that it's got. It has to fix up its fundraising. "

Corporate donations also dried up this year, multiple Liberal Party sources said. Much of this was the result of the publicity surrounding the Free Enterprise Foundation, a federally registered body that had allegedly funnelled funds to the state campaign from prohibited donors under NSW laws.

What happened to the loaned money?

The NSWEC still has not given the $4.4 million of withheld funds to the Liberal Party, and will not do so until "all reportable donations are disclosed".

The NSWEC panel is due to meet on Wednesday to reconsider any new submission by the Liberals to have the funds release.

As for the first $7 million Westpac loan, it had to be repaid in full by December 2015, the documents show.

The final unpaid $2 million of the loan was settled using internal funds.

The division used $500,000 from money set aside for the next NSW campaign and a similar amount from its administration accounts.

The remaining $1 million was pulled out of its investment vehicle, Liberal Asset Management, also known as its Future Fund.

The NSW division's finance director Peter McGauran declined to directly answer a list of questions from Four Corners, including whether it only had $1 million in cash holdings in December.

An internal NSW Liberal Party document seen by Four Corners said it had $5.4 million but noted the $4.4 million in unpaid NSWEC funds was "represented" in the accounts as accrued income.

In a statement, the NSW division of the Liberal Party said: "State Executive is kept fully informed of the Division's finances. The NSW Division is solvent and at no stage has State Executive been advised to the contrary.

"Donations to the Liberal Party are disclosed in accordance with the requirements of the Electoral Act."

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