Guy Hands, the new chairman of EMI, has told potential investors that the company’s former management, led by Eric Nicoli, wasted millions of pounds on corporate excesses that included use of a Mayfair property worth £5.6 million, the retention of highly paid consultants and extravagant spending on candles and flowers.

The poor management is estimated to have cost the company about £100 million a year, according to a confidential document presented to potential investors.

Terra Firma, Mr Hands’s private equity firm, is expected to overhaul senior management and transform the culture of what is perceived to be a profligate company still stuck in the golden age of the music business. Terra Firma is also thought to be hunting for a chief executive, most likely to be an outsider to the music business.

Observers of EMI say that Mr Hands is eager to blame previous management for the problems in the company because he overpaid for a business fighting against a market in freefall. The music industry is in crisis worldwide, with CD sales down 18 per cent in the key US market and download growth not enough to offset the decline. Overall the American market is down 10.2 per cent this year and the valuation of Warner Music, the only publicly traded music company, is hovering near record lows.

A source said: “It has been like the Americans in Iraq. They discovered it was worse than they thought. So now there is the surge and they are pouring more people in.” Mr Hands has sought help and advice from, among others Lord Birt, the former governor of the BBC, and Allan Leighton, the chairman of the Post Office.

Bankers estimate that Citigroup, EMI’s lenders, have lost £200 million on their £2.5 billion loan, which was struck on covenant-light terms just before the credit crunch hit. Citigroup is signed up to an eight-year agreement and will have to wait to see if Terra Firma can turn EMI around.

Others say that Mr Hands himself stands to lose hundreds of millions of pounds and is, in the words of one former executive, “slagging off the previous management to persuade some people that [the company’s] performance will improve”.

Investors have been told of a catalogue of waste at EMI. This includes:

–– Mr Nicoli’s use of a three-bedroom mews house in Mayfair that is expected to be sold for £5.6 million. (The Woods Mews house predated Mr Nicoli but is said to have been used by him on average once a fortnight.)

–– Multimillion-pound advances being routinely offered to acts when there was no hope in recouping the money.

–– The routine sending of Christmas presents worth hundreds of pounds to artists – a practice that is likely to be scrapped under new management.

–– Five-year severance packages for senior executives. (These were curtailed in recent years but at least one senior executive stands to gain more than £10 million if his contract is terminated.)

Not all of the allegations made could be put to Mr Nicoli last night, but sources close to the previous management of the company deny that the music company was incompetently run.

Times Recommends

• Food prices rise 8.3% on soaring fish and meat
• Car sales crash as economy hits skids
• House prices fall but Bank leaves rates on hold