The national Health Services Union (HSU) has applied in the Federal Court to appoint administrators for its Victorian branch, called the Health Workers Union.
The HSU claims the branch is dysfunctional after the Fair Work Commission alleged branch boss Diana Asmar falsely claimed more than $120,000 as relevant business expenses.
It's also alleged she authorised more than $2.7 million to be paid to a printing business that invoiced for products and services that were never received.
Ms Asmar and other branch officials are facing separate Federal Court proceedings, lodged by the Fair Work Commission.
HSU barrister Malcolm Harding SC on Tuesday told the Federal Court the Victorian branch had resolved to investigate the commission's allegations through an independent auditor.
Mr Harding said the branch first appointed an auditor in July but a different auditor was hired on September 16, six days after the HSU launched its own court proceedings.
The barrister claimed the branch did not wait for the outcome of the investigation before resolving to pay the legal fees of Ms Asmar and the other officials.
"How could one possibly reconcile a decision to investigate and take appropriate action and yet, before that even occurs, agree to provide branch funds as the means to which those respondents defend allegations of misappropriation?" Mr Harding asked the court.
But Ms Asmar's barrister Rishi Nathwani SC argued it was reasonable as an auditor was yet reach an outcome in an investigation that took the Fair Work Commission years to complete.
Mr Nathwani said the Victorian branch also resolved to recover any legal costs if there was an adverse finding against Ms Asmar or the other officials.
The branch had introduced protective measures including hiring an independent administrator to oversee finances, Mr Nathwani said.
"The order sought by the (HSU) is neither necessary nor appropriate given the circumstances," Mr Nathwani told the court.
Justice Craig Dowling will hand down his decision at a later date.
Earlier on Tuesday, Ms Asmar sought a stay on the Fair Work Commission's proceedings because she could face criminal charges for the same alleged offending.
Justice Dowling ordered Ms Asmar to submit her written case to the court by October 15 while the commission has until October 29 to respond.
The application will be heard in the Federal Court on November 22.
Ms Asmar's husband David, Health Services Union branch president Rhonda Barclay and union officials Kerry Georgiev, Nick Katsis, David Eden and Lee Atkinson, are also listed as respondents to the commission's civil case.
It's alleged the senior officers at the health union's Victorian branch approved payments or allowed their unique personal banking tokens to be used by the branch's finance manager to make payments.
The alleged conduct occurred between 2016 and 2021.
