Allied Carpets announced last week that Mr Nethercott had resigned following another poor trading statement.
But yesterday the company revealed it had received fresh information that, contrary to statements made at the time, Mr Nethercott had been aware of the stores' practice of booking sales of carpets too early.
The problems led to a profits warning and the departure of two directors but Mr Nethercott always claimed he had known nothing about it. He offered his resignation at the time but Julian Lee, chairman, rejected it and made vigorous supportive statements on his managing director's behalf.
"I was extremely surprised and shocked," Mr Lee said yesterday. "I had always thought I had known Ray quite well, but clearly I didn't."
Retail analysts were also shocked by the revelations. They pointed to a meeting they had with the Allied Carpets board on the accounting irregularities. At this meeting Mr Nethercott "swore blind" he knew nothing about them, they said.
"Ray Nethercott should get an Oscar for that performance; he was almost in tears," said Richard Ratner, an analyst at Seymour Pierce.
The discovery that the irregularities had gone undetected for five years led to the resignations of operations manager Steve Barber and of finance director David Pout.
Auditors Arthur Andersen were also forced to step down though it was the audit team which discovered the problem.
Allied Carpets said the revelation did not alter the company's financial position. However, the City has become increasingly disillusioned with the company, which now has only two executive directors.
The shares closed unchanged at 38.5p yesterday.