The Victorian Government has come under attack for failing to prevent dozens of elderly residents from losing millions of dollars when a Melbourne aged care centre went into administration last year.

The ABC has learned the Government-regulated nursing home was allowed to continue to take bonds of up to $250,000 from elderly residents despite the Department of Health having evidence the home was in financial trouble as early as 2011.

Mentone Gardens, in Melbourne's south-east, went into administration in June last year and residents were told there was little hope of recovering the bonds paid to the facility.

The former residents and their families are lobbying the Government to reimburse their $4.5 million in losses, arguing the system has failed them.

Allan Lorraine, 91, said the group would also pursue a class action.

"It was a great chunk [of our savings] and we couldn't afford to lose it by any stretch," he said.

"[The Government] had a responsibility. I think we've got to make them realise, they're not going to get away with this."

Department knew of financial issues in 2011

Mentone Gardens was a Supported Residential Service (SRS) - a private nursing home regulated by the State Government.

What are SRSs? Privately run

Privately run State Government regulated

State Government regulated 180 in Victoria

180 in Victoria 4,275 residents across the state

4,275 residents across the state New legislation was passed in 2012 to improve their standards

New legislation was passed in 2012 to improve their standards Have faced criticism in the past

The Minister for Ageing, David Davis, had previously told the Opposition the first his department knew of any financial troubles at Mentone Gardens was in January 2013, six months before the home went bust.

However after inquiries from the ABC, Mr Davis said the department had since told him it knew there were issues with unpaid bonds in 2011.

"I've recently been informed that those were isolated incidents that were resolved in 2011, and the information the department has provided to me is there was no systemic issue to that - that they were isolated incidents," he said.

He denied the department should have seen this as a warning sign that the home was in trouble.

"There are more than 100 SRS's across Victoria and there are cases and reports from time to time that are dealt with by the department in the normal way, " he said.

Minister Davis needs to come clean: Labor MP

Labor and the Greens will call on the Ombudsman to investigate the Department of Health's actions.

Opposition Spokeswoman for Ageing Jenny Mikakos said the situation needed to be resolved.

"The Minister needs to come clean. What did he know and when and what action did his department take, if any?" Ms Mikakos said.

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"There needs to be a thorough investigation of what's gone wrong here and some answers need to be provided to these elderly residents who've lost their life savings."

Mr Lorraine is one of those leading the charge to get the bonds reimbursed by the Government.

He and his wife Rose Lorraine paid $400,000 when they moved into Mentone Gardens in 2010.

Under Victorian legislation, the bond was meant to be placed in a trust account to be returned to their families when they died.

"Here we have [the home's owners] who were running this thing knowing full well that people who were aged, unwell, infirm and vulnerable were their targets," Mr Lorraine said.

"And the Government had registered the company."

Among the 35 residents who lost their bonds when Mentone Gardens went into administration were ex-servicemen and four women over the age of 100. Thirteen of them have since died.

Some families are yet to to tell their loved ones that they had lost the money, because they fear the news would be too much.

New regulations in place to protect pensioners

The Government said new legislation that came into place in 2012 should prevent future cases like Mentone Gardens.

"I have enormous sympathy for the people involved," Mr Davis said.

"Obviously the tighter regulations are needed and we're administering the tighter regulations.

"The things that happened before the regulations came in, the contracts and arrangements, aren't dealt with by the previous legislation."

Liquidators are still pursuing the former proprietor of Mentone Gardens for money, while Australian Securities and Investments Commission is investigating.