As dreams of a golden makeover for the Olympic sailing venue of Weymouth hang in the balance, the town's civic leaders are preparing to sue the developers involved in the massive regeneration project.

The credit crunch-hit company behind the multi-million redevelopment of the harbourside for the 2012 games has failed to submit plans outlining its blueprint for the future and now civic chiefs want to sue the firm. It had signed an agreement to build a revamped theatre, new ferry terminal, public square, homes and four-star hotel. The scheme is technically not essential to the staging of the Olympic sailing events, but Weymouth and Portland Borough Council know it would be foolish not to give the area a much-needed face-lift. The town will welcome thousands of visitors and there is hope for a long-term boost to tourism.

The ambitious scheme was discussed at public and council meetings for months and the council's developer partner, Howard Holdings, was expected to put in a formal planning application in August. Months of frustration have followed with the council warning last month that the credit crunch was adding to troubles and publicly announcing that it was seeking reassurances from the company.

Now the council has started a legal process that could result in bringing the agreement to an end.

An alternative could be for the Howard Holdings' funder, Europa, to take up its option of stepping in.

Councillor Howard Legg, brief holder for corporate affairs and special projects, said: "Our first action must be to protect the assets of the residents of Weymouth and Portland. The agreement with the council's development partners, Howard Holdings Weymouth, contains provisions for enforcement of the agreement in the event that the developer fails to perform.

"Unfortunately, Howard Holdings Weymouth has failed to progress the development and has given the council no indication of whether it is in a position to take the development any further.

"The council has therefore started the legal process which could result in bringing the agreement to an end. An alternative outcome could be that the developers' funder, Europa, takes up its option of stepping into the agreement and continuing with the development project. Because of the contractual requirement to give Europa adequate time to consider its position, the outcome may not be known until the spring."

In the meantime, the council is also taking steps to protect public assets by pursuing the developer for sums due to the council under the terms of the agreement, exploring all available options for progressing the development and developing contingency plans for the site in the event that the development agreement comes to an end.

The Press was unable to contact anyone from Howard Holdings Weymouth yesterday.