The November 27, 2015, letter from rail freight operator Aurizon declares the company in default of a $12.5 million debt and calls for payment within 28 days, leading to intense questioning in the Federal Court.

But the former politician, who had stepped down as a director by then but was still the ultimate beneficiary of the company, claimed it was just "commercial negotiations" and the Aurizon company was acting as "paper tigers".

He'd previously told the Federal Court hearing into the company's collapse he'd been assured there was "nothing to worry about with Aurizon" and the company had agreed to defer the debt.

The November 27 letter from Aurizon to QNI chief financial officer Daren Wolfe threatened to cut off the supply of critical iron ore to the Yabulu refinery, outside Townsville, if the payment wasn't made within 28 days.

Mr Palmer claimed the fact the extreme step was never taken as proof the demands were all a bluff.

"They're paper tigers in this letter because they never suspended  the services on the 25th of December," he said.

"We think this is just commercial negotiations."

Barrister Jim Sullivan QC, for special purpose liquidators PPB Advisory, charged with recovering millions of dollars of taxpayer money paid out in entitlements to sacked workers, appeared to grow more and more incredulous as he questioned the resources magnate.

General purpose liquidators FTI Consulting alleged QNI became insolvent from the time it defaulted on the $12.5 million debt and remained so until it went into voluntary administration in January, with eventual debts of almost $300 million.

The court heard Mr Palmer flew to Brisbane for a meeting with Aurizon on December 4 , at the request of his nephew and QNI managing director Clive Mensink, because of the "seriousness" of the situation.

According to a December 10 letter reiterating demands for payment, Aurizon knocked back a QNI request to defer payments to May 2016 but Mr Palmer denied that making the request proved QNI couldn't pay.

"At any time at all we could have paid this amount," he insisted.

By about this time, Queensland Nickel managers were discussing potential redundancies at the plant, which eventually led to the sacking of 200 workers in January.

Texts from Mr Palmer's phone to refinery manager Ian Ferguson before he received the report, read out in court, appeared to show him ordering a "confidential" HR report into the entitlements of the last 200 workers QNI employed.

The court heard Mr Palmer received a copy of the report detailing savings and workers entitlements for up to 250 employees but he denied making the eventual decision.

He'd earlier been reminded he was "under oath" when he claimed to have had no advance warning of the sackings.

Earlier in the day Mr Palmer blamed "corruption at its highest level" for QNI failing to achieve a $25 million loan in mid-September but denied it showed the request showed the company couldn't pay its debts.

"It's just bullshit," he said, when pressed on the issue by Mr Sullivan.

Special purpose liquidators are trying to prove whether Mr Palmer was acting as a shadow director and if the company was trading while insolvent.

The former politician claims an old green notebook, combined with a complicated joint venture agreement between QNI parent companies QNI Resources and QNI Metals, gave him wide-ranging authority as chairman and secretary of the controlling committee to direct QNI on its behalf.

Mr Palmer aimed sprays at Prime Minister Malcolm Turnbull, Queensland Premier Annastacia Palaszczuk and Treasurer Curtis Pitt in his time on the stand.

His lawyers applied to the High Court to stop him being called back for further questioning beyond this week's burst, which is expected to wrap up on Friday.

A hearing has been tentatively scheduled for November.

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