A legal challenge looms over the Victorian Liberal Party’s $1.55 million loan to save a former leader’s political career.

The Victorian Liberals’ administrative committee last week agreed to lend former leader John Pesutto $1.55 million to settle his debt to first-term MP Moira Deeming.

Pesutto was ordered to pay $2.3 million in legal costs to Deeming after the Federal Court found he defamed her by implying she was associated with neo-Nazis.

It left him facing bankruptcy, which would have triggered his exit from parliament and a subsequent byelection in his marginal seat of Hawthorn, in inner-Melbourne.

The payment deadline is Friday.

Pesutto, who has already coughed up $315,000 in damages, had raised only about $750,000 through wealthy backers and a GoFundMe campaign.

A Liberal source with knowledge of the situation confirmed on Thursday that the $2.3 million had been transferred to Deeming’s lawyers, including the $1.55 million loan from party entity Vapold.

However, a hearing to block the loan on the grounds it potentially breaches party rules has been listed for the Supreme Court on Thursday afternoon.

Documents connected to the proceedings are yet to be filed with the court.

State Opposition Leader Brad Battin voted in favour of the loan, which must be repaid by Pesutto at market-rate interest. He has called for colleagues to drawn a line under the long-running feud.

Deeming was expelled from the Liberal party room over the furore but welcomed back in December as Pesutto lost the leadership.

She offered to defer some of Pesutto’s legal bill in exchange for her guaranteed preselection and him swearing off trying to return as leader for three years, but the deal fell over.

Deeming and Pesutto were contacted for comment.

-AAP