An east China court on Friday refused to hear a lawsuit from nearly 150 creditors who intended to seek state compensation over a large-scale lending scam, a lawyer said.

Dong Shunsheng [file photo]

A loan default by Liren, a Chinese company that previously operated in the education, real estate and mining industries, is estimated to have cost 7,000 private creditors a whopping 4.5 billion yuan (714 million U.S. dollars) in Zhejiang province.

A total of 147 lenders filed the suit on Monday in the Intermediate Court of Wenzhou, accusing the county government of Taishun and its police department of failing to take action against Liren. The lenders are seeking 68.64 million yuan in compensation.

Zhang Ren, an attorney representing the creditors, said the court refused to take the case, stating that the lawsuit "does not fall within the scope of administrative litigation."

However, Zhang said that the group plans to file a similar suit in the Provincial Higher People's Court.

The creditors believed that the county government and police turned a blind eye to Liren's lending scam, allowing the company to collect nearly 900 million yuan from private creditors after making false promises of high returns during a four-month period before the company went bankrupt.

Last October, the group said it would stop repaying creditors. Police detained company head Dong Shunsheng on Feb. 3 for alleged fundraising fraud.

Most of the company's investments came from private lending. Paying high interest for years led to Liren's downfall, investigators said previously.

When Liren's businesses could no longer generate enough income to allow the company to pay back its creditors, the company started offering even higher interest to draw money from new investors, using the investors' money to pay returns to earlier creditors.

Liren's downfall has risen concerns about private financing risks, an issue that has become particularly relevant in Zhejiang, where private businesses have become a pillar of the prosperous local economy.

More than half of 2,835 companies surveyed in Zhejiang last year have sought financial help from private creditors, as banks are typically unwilling to lend to smaller companies.

During last year's credit crunch, about 100 managers or heads of private companies in Wenzhou were reported to have disappeared, committed suicide or declared bankruptcy -- invalidating debts worth about 10 billion yuan.