Nauru's finance minister says the country is out of money and services will soon start shutting down, including those for Australia's refugees.
However, a government spokesperson says no services have been affected yet, the ABC reports.
Two years ago a court ruled that Nauru owed $16 million to a US-based fund manager, Firebird. It refused to pay and that debt has grown to $30 million.
The government's bank accounts with Westpac have now been frozen.
Nauru is seeking to overturn the decision and urgently free up the funds.
In an affidavit, the country's finance minister David Adeang told the New South Wales Supreme Court that the island would shortly run out of cash.
It would then have no money to buy fuel for generators, affecting the hospital and desalination plant.
The minister said planes would be grounded, which means Nauru will not be able to transport health, legal and other contractors to the detention centre, which he said would have a severe impact on the physical and mental health of the approximately 1200 refugees living there.
The court case starts on Monday.