Former Victorian opposition leader John Pesutto owes Liberal MP Moira Deeming $2.3 million in legal costs after the Federal Court found he defamed her by implying she was associated with neo-Nazis who gatecrashed a Melbourne rally she attended in 2023.
Mr Pesutto faces bankruptcy and a forced exit from parliament unless the money is paid or a payment plan sorted out within weeks.
Mrs Deeming on Sunday proposed an offer that would spare Mr Pesutto bankruptcy if five demands were met, including she be endorsed for pre-selection before the next election.
Liberal preselection is finalised through a vote of rank-and-file members and a special resolution would have been required in such a scenario.
Victorian premier Jeff Kennett accused Mrs Deeming of failing to "understand how the party works" and described her bid for preselection unusual.
Mr Kennett donated to Mr Pesutto's defence and wants the Liberal Party to pay part of the legal bill.
"I really felt she has been terribly, badly advised so, to some degree, I feel very sorry for her," Mr Kennett told ABC Radio on Thursday.
"The Liberal Party should never, ever contemplate throwing one of its own under a bus and, second, we've always got to do what's in the best interests of, in this case, the state and the party."
In her letter to Mr Pesutto, his successor Brad Battin and Victorian Liberal president Philip Davis, Mrs Deeming said she was "dismayed" the party was considering a request to help the former leader meet his financial obligations.
"It is because of the extraordinary support that I have received from rank-and-file members that I make this offer with the intention that the funds they have raised to fight the Labor Party remain solely directed to that important objective," she wrote.
Mrs Deeming's other requests included the party release an unreserved apology and Mr Pesutto pay $750,000 he has raised so the rest of his debt is delayed until 2027.
"I have suffered through a gruelling two-and-half years where almost every offer I made to negotiate a settlement was rejected," she wrote.
A member of the public who was "outraged" by reports of the letter emailed Liberal MPs to reveal he referred the matter to Victoria's Independent Broad-based Anti-corruption Commission (IBAC).
Anyone can make a referral to IBAC but that does do not automatically trigger a full investigation.
The man told AAP he was not a member of the Liberal Party but had been a member of three other political parties in the past.
Mr Battin described Mrs Deeming's preselection request as "unusual" but said he could not comment on the offer or reports of the IBAC referral.
Mrs Deeming has been contacted for comment.
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