Auditors have cleared Thanet council of acting unlawfully over a secret deal with ferry company TransEuropa.

The company, which operated a passenger service out of Ramsgate port, collapsed last year.

It then emerged the council had agreed to defer berthing fees paid by the operator while it sought new investors.

At the time it went into administration, Thanet District Council was owed £3.4million - money it has had to write off.

The council's actions were the subject of a series of complaints to its auditors, among them the Green councillor Ian Driver.

A report into the affair did not uphold most of the complaints against the council, notably the claim it had acted unlawfully by agreeing the secret deal.

But auditors said the council should have been more open with councillors about what was going on and criticised the lack of record-keeping. They also said the council should have taken outside legal advice.

"Given the sensitivity of the issue, we would have expected a better record to be kept of these decisions..." - Thanet District Council auditors

The report published today said the council had not agreed to waive debts, but deferred the timescale - which it described as an important distinction.

"Deferring the timescale for the repayment of debt is often used by both public and private sector bodies as a means of increasing the chances of repayment... in our view this was a reasonable approach for the council to take," it said.

But the council was rapped for failing to keep a better record of discussions and told to improve its communications with members.

"Given the sensitivity of the issue, we would have expected a better record to be kept of these decisions."

The report also says the deal amounted to a "key decision" because of the potential impact on the area and should have been reported to the council's backbench watchdog committee.

At the same time, it accepted the council's argument that had it gone public with details, it could have jeopardised the company's future through negative publicity.

Cllr Driver, who blew the whistle on the secret TransEuropa debt said the report vindicated his view that the council was "grossly incompetent" and the deal was wrong.

"This secret gamble with taxpayers' money should never have happened," he said.

The council was approached for comment but has yet to respond.