Coin Co International (CCI) owed £3.2 million to Brighton and Hove City Council when it went bust in November 2014.
Coin Co had a contract to collect and bank cash from parking machines and council premises but the arrears prompted the council to end the deal three months before the business collapsed.
Conservative councillors urged the council to seek expert legal advice with a view to bringing a court case – if necessary against the auditors or individual directors.
The Tories said that it would be worthwhile even if a relatively modest sum was recovered – and it would have a deterrent effect on others.
But council officials said that there was so little likelihood of success that even seeking expert legal advice would be a waste of taxpayers’ money.
Money is still owed to Coin Co’s bank Santander which is ahead of the council in the queue for any payout.
Conservative opposition leader Tony Janio led calls for the council to seek advice at a meeting of the council’s Audit and Standards Committee at Hove Town Hall on Tuesday (January 8).
Councillor Janio said: “Part of the whole reason for doing this is so residents get to be assured we are doing all we can to get their money because it is their money that was lost.”
He wanted to know if there was anything that the council could do to put the former directors in prison.
He said: “As soon as the money dropped into the meter, who owns that money? If it was the company who were trading while insolvent, that is fraud.
“If the money belonged to the council then it is theft. Is it fraud of theft? I don’t know.
“Counsel will advise us and we need some form of advice.”
Labour councillor Alan Robins was concerned about an unspecified amount of money being spent when there was ‘no chance’ of getting the money back.
He said: “I do not understand what added value there is in taking this out to someone who is rubbing their hands together to take our money.
“Our lawyers have told us there is no chance. I don’t know if the money still exists.”
Conservative councillor Joe Miller, who chairs the committee, said that the advice from officials was “heavily caviated” and set out the risks but it did not say “no chance”.
Green councillor Ollie Sykes said that he understood the Tories’ motivation but could not support their request.
He asked what could be done to ensure that nothing like this happened again.
Nigel Manvell, the council’s assistant director of finance and procurement, said that there were now different approaches to financial appointments and more regular checks.
Labour and Green councillors voted down the Conservatives’ formal request for expert legal advice.