The move came as part of a damage limitation exercise to stem the controversy whipped up by the collapse in the shares from the placing price of 175p in November, when Stephen Boler, the group's founder, took the opportunity of raising pounds 60m from the sale of most of his stake.
A spokesman "categorically" denied that there had been pressure from institutional investors for the management change, but Mr Boler, who had been a non-executive director, is to return to the group as a consultant. Last week he said he would not take on an executive position at Limelight. He will now form part of a new operational advisory committee to implement an action plan for the business, which will also include Andrew Stanway, managing director of the Sharps fitted bedroom business, who is to replace Mr Cotter as group chief executive.
Mr Cotter, who is on an 18-month contract earning pounds 230,000 last year, is still negotiating his pay-off, but it could end up being close to pounds 350,000, if his contract is honoured in full.
A restructuring will see the Dolphin business, which has seen an "unexpected" sales decline recently, merged with the MKD division, which currently includes Moben, another poor performer, and Kitchens Direct.