The legal services arm of the Co-operative will not be part of the ‘root and branch’ review of the group triggered by allegations made against the former chairman of Co-op Bank, the mutual organisation said today.

The investigation followed video footage obtained by the Mail on Sunday newspaper of Paul Flowers, who is also a Methodist minister, apparently buying illegal drugs.

Flowers had been chairman of the bank since April 2010. Controversy over his competence erupted following an appearance before the Treasury Select committee earlier this month in which Flowers was unable to state the bank’s assets, estimating the figure at £3bn when in fact it was £47bn.

The Co-operative Group’s chairman Len Wardle resigned with immediate effect today saying ‘serious questions’ had been raised by recent revelations.

A statement from The Co-operative Group today said given the ‘serious and wide-ranging’ nature of recent allegations, the new executive management team has started a ‘fact-finding process’ to look into any inappropriate behaviour at The Co-operative Group or The Co-operative Bank and to ‘take action as necessary’.

In addition, it said the Co-op’s board has launched a ‘root and branch’ review of the democratic structure of the organisation to ensure the interests of members are ‘properly and directly represented’ in the oversight of its business activities.

A spokesman told the Gazette that the review centres on the democratic structure and whether the interests of the group’s 7 million individual members and the independent co-operatives, which are corporate members, are properly served by the area committees, regional committees and ultimately the board of the Co-operative Group.

He confirmed that CLS is not involved in the review.

Last week the Solicitors Regulation Authority warned of the threat of ‘group contagion’ to law firms operating under complex group structures.

A report to the regulator highlighted two types of contagion – direct contagion involving financial shock to one part of the group spreading to the rest of it through direct financial links, and indirect contagion, where outsiders respond to an event causing knock-on effects to the rest of the group.

Wardle will be replaced by Ursula Lidbetter, currently group deputy chair and chief executive of the Lincolnshire Co-operative Society.