Shares in Tasmanian-based baby food maker Bellamy's have slumped on the back of news it is being sued by investors.

Litigation funder IMF Bentham has told the stock market it plans to sue Bellamy's for allegedly misleading investors last year.

It will fund legal action to be run by law firm Slater and Gordon, which is also being sued by investors and investigated by the corporate regulator.

In a statement to the stock exchange, IMF Bentham said it planned to fund claims of current and former Bellamy's shareholders on a conditional basis.

"The claims relate to alleged misleading or deceptive conduct and an alleged breach by Bellamy's of its continuous disclosure obligations in connection with its trading prospects and future earnings performance during the period between 14 April 2016 to 9 December 2016," the statement said.

Lawyer Mathew Chuk from Slater and Gordon said the case would investigate whether or not Bellamy's knew sales would be much lower than expected before it told the sharemarket the news in the trading update on December 2, 2016.

"We think there are a lot of factors that point towards the company being aware of that information prior to it being announced to the market," he said.

"The class action would seek to claim losses suffered by investors who purchased shares in that time (April to December)."

Mr Chuk said the market and market analysts had expected substantial growth in sales of Bellamy's products this year and in future years.

"The company made statements through 2016 which focus on the potential growth that the company was going to experience," he said.

"What's emerged was that sales were actually flattening during 2016 and we think the company was likely to be aware of that well before the 2nd of December."

Mr Chuk also said the changes to Chinese import regulations disrupted sales in China and he alleged Bellamy's was keen to paint a positive picture of the changes.

"It only emerged from the 2nd of December that they were actually disruptive effects of those changes for Bellamy's business."

Second class action

Rival law firm Maurice Blackburn is also running a class action against Bellamy's. Lawyer Ben Slade said 700 people had already registered to join his firm's action.

The firm has partnered with litigation funder ICP to run the action.

"The argument is, if the market is so completely shocked by the news the company brings out, then that information must have been material to the market and the company should have told the market at some stage earlier," he said.

"We think the company could see things going badly at around April 2016.

"The difference in the price the shareholders paid and what they should have paid is the sum we believe they should be compensated for."

Share price continues decline

Bellamy's share price has plunged nearly 70 per cent from above $12 to below $4 after the company said in early December that sales and prices had slumped because of changes to regulations in China.

Chinese authorities have tightened regulations on baby formula imports to improve safety standards.

The company's shares were halted from trade for a month from mid-December to mid-January after the share price plunged more than 40 per cent because of the trading update.

When trading resumed, Bellamy's announced it had sacked its chief executive Laura McBain and slashed its profit forecast for 2017 by half because of lower sales.

The company's woes also include a board challenge from dissident investors driven by Bellamy's investor and Kathmandu founder, Jan Cameron.

Bellamy's revealed last week that Ms Cameron was behind the company's biggest shareholder, the Black Prince Foundation, and had offered the firm a loan of up to $20 million on the condition that the four board directors resign and be replaced by Ms Cameron and three other directors nominated by Black Prince.

Bellamy's said it rejected the offer.

A special meeting of investors will be held late next month where Ms Cameron and her colleagues will try to unseat four independent board members so they can sit on the board.

Bellamy's has advised investors to vote against the plan.

At 12:25pm (AEST) Bellamy's shares were down 3.5 per cent to $3.87.