Official papers confirm the Government put pressure on Solid Energy to increase its debt and then appeared later to criticise it for borrowing too heavily as it got into difficulty.
The state-owned coal company is in debt to the tune of $390 million.
The papers released on Friday also show that despite strongly disagreeing with the company's business plan, the Government left it late to act.
In 2009 the then State-Owned Enterprises Minister, Simon Power, wrote to Solid Energy chair John Palmer recommending the company raise its gearing ratio - a measure of debt - to 40%.
By June 2012, when it was clear the company was in trouble, the ratio had risen to 37% and, according to the Treasury, Solid Energy had taken on significant debt.
It was only at that point, after arguing with the company for three to four years about its business plan, that the Government decided to make changes.
'Lack of government oversight' criticised
Green Party co-leader Russel Norman says it's clear from the papers the management and board had overly optimistic views about its performance.
But Dr Norman says the Government was warned and failed to take the action necessary to keep Solid Energy in good financial shape.
Part of the reason for Solid Energy's failure, he says, was lack of government oversight.
On Thursday National Party MPs blocked a commerce select committee inquiry into the situation and the Labour Party said that it will ask the Auditor-General to investigate the financial circumstances surrounding Solid Energy.
Government MPs say they seriously considered holding an inquiry but decided the committee has already heard enough.
