Federal government sued over pink batts

Businesses that collapsed when the pink batts insulation scheme was scrapped are suing the federal government for more than $100 million in compensation.

Installers, manufacturers and business owners who lost millions or were forced to close after the government suddenly terminated the problematic Home Insulation Program want justice, their lawyers say.

ACA Lawyers and McLaughlin & Riordan have launched a class action on behalf of more than 100 people in the Victorian Supreme Court that alleges the government's mismanagement of the scheme resulted in business loss, or forced them into bankruptcy.

A royal commission, set up by the coalition government, and the subsequent establishment of a compensation scheme has not compensated businesses, lawyers say.

"Only relatively small or token payments were made to a very small number of installation and insulation businesses," said Mark Farrell, partner at McLaughlin & Riordan.

The current government's compensation arrangements only included businesses that existed prior to the pink batts program, and left out manufacturers and businesses that were established as a result of the program.

It's believed 104 claims have been settled, at an estimated cost of $13.4 million, even though thousands of businesses were affected.

Suing the federal government is a last resort for many, the firms say.

"For most of the businesses involved in the program, a class action is all that they are left with," Mr Farrell said.

He expects the compensation bill will continue to grow as more join the case.

"We're seeking fair compensation," Mr Farrell said.

"We don't expect to win the lottery. We know that taxpayer funds are involved, and the money is not unlimited."

So far, 50 companies have signed up to the civil suit.

The pink batts scheme was a 2009 Rudd Labor government program designed to stimulate the economy due to the global financial crisis.

It was suspended in 2010 following the deaths of four workers before it was completely scrapped.

South Australian senator Nick Xenophon says both sides of politics have abandoned small businesses affected by the failed insulation scheme.

"What we have here is a situation where the home insulation program debacle was used as a political football at the last election," he told reporters in Melbourne.

The Abbott-Turnbull government has shown a "callous" approach to business victims, he said.