Tesco has cleared payouts for former chief executive Phil Clarke and ex-finance chief Laurie McIlwee after its legal team advised there was no basis for continuing to withhold the payments. 

Tesco said it had agreed to pay Clarke almost £1.22m and McIlwee £970,880 under their separation agreements. 

Clarke's 40-year Tesco career - three and a half as CEO - ended when he was sacked last July. McIlwee, the company's chief financial officer from 2009, resigned in April last year. 

The payments had been suspended due to an investigation into Tesco's accounting practices in the wake of the supermarket's £263m profit overstatement. 

Tesco said it was contractually committed to make the payments unless it could legally establish a case of gross misconduct. 

"The company has taken legal advice and has concluded that it does not have the basis for continuing to withhold the payments," it said.

"Accordingly, the board considers that defending costly claims for the payments would not be in the company's best interests," it added. 

The UK Serious Fraud Office is continuing to investigate the accounting issue which relates to Tesco's booking of commercial income from suppliers. 

Tesco said if new information came to light which changed its current assessment it would pursue recovery of the payments, together with damages. 

Last year Britain's biggest supermarket issued four profit warnings, sending its shares to a 14-year low. 

Dave Lewis, who succeeded Clarke as CEO, is fighting back with a plan to slash costs and sell assets to fund lower prices and mend the firm's finances.