FRESH doubts have been raised as to whether or not £12m of taxpayers' money invested in a collapsed Tyneside electronics firm can be recovered.

The Department of Trade and Industry (DTI) has been in negotiations to reclaim the cash from the US-based Viasystems Group, after its Tyneside operations went bust last September.

The Government gave the firm the grant in 1997, but has demanded the cash back.

Viasystems had agreed to a payment plan and has so far returned £3m. But now the St Louis firm has filed a Chapter 11 application for voluntary bankruptcy in the US Bankruptcy Court for the Southern District of New York.

The move means the company is given several weeks' grace to straighten out its finances. During this time, it is untouchable by debtors.

This means the DTI can no longer reclaim the £9m it is still owed.

A Government spokeswoman said: "We agreed a schedule of repayments but are in discussions with the company and their lawyers to find a way forward."

Viasystems is expected to be fully trading again by the middle of next month.

It applied for bankruptcy after agreeing a refinancing plan with its debtors, which will see about $740m in debt wiped out in exchange for stocks and shares.

It should reduce the company's $1.1bn to about $380m.

* The firm could not be contacted for comment at the time of going to press.