Isoft, the troubled software supplier to the £12.4bn National Health Service IT project, could face fresh pressure at its annual general meeting on Tuesday after the Association of British Insurers raised corporate governance concerns.

The company, which is already under investigation by the Financial Services Authority for possible accounting irregularities, has been given a “red top” warning by the ABI.

The organisation is concerned about free shares awarded to Gavin James, Isoft’s finance director. In its annual report, Isoft said the payment was made to “align his interests” with shareholders.

However, the ABI said on Friday: “If you give free shares, that doesn’t make sense. You have to put your hand in your own pocket to have an interest.”

The red top indicates the ABI’s highest level of concern on a corporate governance issue, but is not a specific recommendation for shareholders to vote against the board at an annual meeting.

Isoft poached Mr James in April 2005 from Morse, the IT services company. His international experience was cited as one reason for his selection, as Isoft prepared for overseas expansion. However, he has since become embroiled in a fire-fighting operation following a series of profits warnings.

Isoft awarded Mr James 59,808 shares when he joined the company, then worth £250,000. Following a plunge in the company’s share price, they are now worth £33,000. Mr James entitled to the shares in two years’ time.

“It is an attractive package,” said Isoft. “We accept that it’s not entirely in line with the usual recommendations but a number of significant shareholders have expressed the fact that they are comfortable with it.”

Isoft is expected to update the market after its half year ends on October 31. Mr James and John Weston, acting chief executive, are attempting to cut costs and secure new revenue streams to help meet a tough debt repayment schedule negotiated with the company’s banks.

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