Babcock & Brown was submerged in debt during its collapse, according to Michael Larkin in the fourth day of hearings in the Federal Court in Sydney.

The last CEO of the failed global investment and advisory firm said B&B had always run a highly leveraged business model.

But despite debts of at least $3 billion, he said it was the "contraction of credit" during the world financial crunch that gave the final blow to B&B.

Mr Larkin was the company's chief financial officer prior to his appointment as CEO, after Phil Green was ordered to quit by the board.

"The group had a return-on-equity target of 25 to 30 per cent, which was a high target," he said.

"It had significant leverage at the project and corporate level, so in that sense it had significant leverage.

"And to the extent people regard that as high-risk, then, yes (it was).

"It was something we were looking to reduce."

The court was told of an August 2008 email to Mr Larkin from the company chairman Elizabeth Nosworthy, asking whether B&B could survive as an independent entity.

The financial empire, which was valued $10bn at the peak, fell down seven months later in March 2009.

Mr Larkin was also asked over B&B's $5.6bn loss in 2008.

He said the board's move to restructure its debt with a syndicate of banks had revised some of the accounting methods that contributed to the 'quantum' of the result.