A group of former Westland Milk shareholders have failed in their bid to have the Overseas Investment Office (OIO) delay the sale of the co-op to Chinese dairy giant Yili.
The OIO, in approving Yili's application, said the issue raised by the group was for them to resolve with Westland's new owners.
Six former milk suppliers to Westland - who exited the co-op last year because of its uneconomic payout - said they are owed between $7 million and $8m by Westland in share redemption cash.
They sent a submission to the OIO asking for the Yili application to be put on hold until they received payment for the shares they surrendered when they left the co-operative.
The OIO, in approving Yili's application, said the issue raised by the group was for them to resolve with Westland's news owners.
"This is a commercial issue for the former shareholders to resolve with the new Westland owners," Vanessa Horne, Land Information New Zealand group manager, Overseas Investment Office, said in a statement.
"The law is straightforward about what the OIO can take into account when assessing applications, and these sorts of issues fall outside it," she said.
The OIO said consent was needed because Yili was buying sensitive property - 4.8ha of residential land - and significant business assets worth more than $100 million.
The residential land is currently used for factory worker accommodation at Westland's two processing plants in Hokitika and near Christchurch, and as a noise buffer between the plants and their neighbours.
The office approved the application because it met all the tests required under the Overseas Investment Act.
Horne said the law was clear and that Yili met all the requirements needed to buy Westland.
"It's important to remember that the tests for this investment are quite narrow," she said in a statement.
"Yili is not buying rural land, which involves very different tests for investors," she said.
"The benefit to New Zealand test doesn't apply to this investment because it doesn't involve rural land," she said.
Yili's purchase still requires approval at a High Court hearing, which is set down for Thursday.
Westland dairy company farmers voted to sell to Yili at a meeting early this month.
The $588m deal involved Yili paying farmers $3.41 a share and taking on $342m of Westland's debt and liabilities.
Yili has also undertaken to match Fonterra's milk price for 10 years and to pick up all milk for a decade after the sale.
In a statement, Yili said it welcomed the OIO decision.
Yili Group chief executive, Jianqiu Zhang, said Yili's goal was to be become "the most trusted health food provider in the world''.
"We are very hopeful that our offer will be accepted by the High Court so that we can work towards creating a strong and secure future for one of New Zealand's most trusted brands," Zhang said.