A full meeting of North Yorkshire Council heard there was potential for legal action over Scarborough Borough Council’s Alpamare water park deal with Benchmark Leisure, which was made behind closed doors in 2013.

Councillors were told it was impossible for the authority to respond to “perfectly proper” questions regarding the loan, the possibility of nearly £8m of public money being lost or even if the facility was being adequately maintained without potentially impacting on proceedings.

The Conservative-led authority’s deputy leader and finance boss, Councillor Gareth Dadd, pledged a report by counter fraud, data protection, risk management, and internal audit specialists Veritau over the deal would be published “when appropriate and once completed”.

It is understood the investigation has been commissioned to be wide-ranging and will examine the historic decisions of Scarborough council’s Conservative administration, which includes several serving North Yorkshire Council members.

The announcement came in response to Alison Hume, the Labour parliamentary candidate for Scarborouugh and Whitby telling the meeting she expected a legal investigation regarding the £9m loan, which is believed to have been unsecured.

Little is known about the deal as the documents revealing its terms which were laid before Scarborough councillors have never been published.

Ms Hume called on the authority to outline what it was doing to ensure the facility was reopened as soon as possible as Scarborough now had just one swimming pool for a population of 109,000.

Ms Hume said: “Living in a coastal area means it is critical our children learn to swim, but hundreds of children now have been left without lessons.”

Scarborough councillor Eric Broadbent told the meeting since it was announced the firm behind the waterpark had gone into administration he had been inundated with messages from residents about how much they used and valued the facility for fitness classes and swimming lessons.

Describing the facilities as “world class” and calling for the council to enable the reopening of the water park as soon as possible, he said: “The water park was envisaged as a tourist attraction, but it should be clear to all of us… it has become a much-valued part of our community and a wellbeing social hub.”

The authority’s leader, Councillor Carl Les, said the council recognised the importance of the asset, both to the visitor economy and to local residents.

He said: “This council will do whatever we can, whatever the ownership in the future, whoever the operator may be in the future, but we are bound by the rules of receivership at the moment and I can’t say anything more at the moment.”

Alpamare deal: Council reveals investigation and potential legal action