Tesco could end up footing a huge legal bill for its sacked former executives Philip Clarke and Laurie McIlwee if any action is taken against them as part of a Financial Conduct Authority investigation into a £260m accounting scandal.
The Independent understands that the former chief executive and former finance boss signed legal indemnity clauses while working for the supermarket, which would shield them from any costs.
FCA officials were handed an internal report on Thursday from Deloitte and Freshfields, who were appointed by Tesco to uncover how much money was mis-reported after a whistleblower informed its new boss Dave Lewis of the practice.
Sources at the FCA believe an investigation could take several months while investigators pour over the 6 million emails seized from Tesco’s commercial team.
It is not yet known whether any charges will be brought but, if the company is found to have misled the market, it could face a heavy fine and individual current and former staff could be stripped from holding future directorships.
Eight current directors, including the UK boss Chris Bush and Kevin Grace, the commercial director, have been suspended, and Tesco has given no indication how long they will be absent.
Internal investigators are thought to have spoken with both Mr Clarke and Mr McIlwee as part of the investigation, as the report discovered the practice of moving commercial fees to the wrong accounting time period stretched back three years.
Originally, it had been thought the problem only started six months ago at a time when Mr McIlwee had already been removed.
Mr Lewis revealed that both have had their pay-offs from the company revoked while the FCA investigation continues. However, Mr Clarke is still technically employed by the company and is earning £95,000 a month.
The indemnity clauses are understood to cover any legal costs associated with their time at the grocer, relating to company business, but there is no suggestion of wrong-doing by either Mr Clarke or Mr McIlwee.
The revelation comes as city analysts gave a near-unanimous thumbs down yesterday to Mr Lewis’s first public outing, at which he unveiled a company that was over-leveraged with sinking profits and a boardroom without a chairman after Sir Richard Broadbent quit.
An unprecedented eight retail analysts cut their forecasts for the UK’s biggest grocer after Mr Lewis said all previous guidance over what the full year profits could be had been scrapped. It sent shares down to a new 11-year low, off 2.25p at 168.75p.
Deutsche Bank, JP Morgan, Jefferies, Oriel Securities, Santander, Exane, S&P Capital and Besi (formerly Espirito Santo) all downgraded their target share price for the supermarket, with several criticising Lewis and the new chief finance officer Alan Stewart for being too short on details.
Shore Capital added that it would be considering future downgrades after Tesco also revealed all options are on the table, including a rights issue, selling off parts of its portfolio and the mothballing of new stores.
Analysts at JPMorgan explained: “We got a good impression of the new CEO and CFO, who listed a number of sensible basic principles and priorities such as the need to regain competitiveness and to strengthen the balance sheet. But we could not find anything positive in the results.”
Shore Capital’s retail analyst Clive Black added: “We are now re-visiting the group’s model with a view to further downgrades given management’s comments that it is not in a position to provide guidance.”
However, he also defended the new boss and Mr Stewart, pointing out that the pair had only been in their jobs seven and four weeks respectively.
He added: “For folk to expect Mr Lewis to make pronouncements on new management appointments, disposals and the like was simply ‘nuts’ to our minds.”Reuse content