Sports Direct has been heavily criticised by its own shareholders and corporate governance experts after it emerged that the sportswear retailer pays an obscure company owned by Mike Ashley’s brother to deliver online orders outside the UK.

One of Sports Direct’s biggest 10 shareholders said the arrangement with John Ashley “doesn’t look very good”, while Royal London Asset Management said it had “lost confidence” in the directors of the retailer to protect the interests of investors other than Mike Ashley, the founder.

The Financial Reporting Council, the City regulator, is understood to be looking into the agreement and why it was not disclosed in Sport Direct’s annual report as a related party transaction. It has not yet launched a formal investigation, but could so if it finds evidence of wrongdoing.

Listed companies in Britain are required to disclose deals with parties who are connected with the directors. Mike Ashley is the executive deputy chairman of Sport Direct and still owns 55% of the company. However, Sports Direct said in a statement that the company and its auditors Grant Thornton were “comfortable that there was no related party disclosure required in Sports Direct’s historic accounts”.

The revelation of the arrangement with Ashley’s brother is the latest tremor to hit Sports Direct. The company is facing a rebellion by shareholders at its annual meeting next month over the treatment of workers and its business practices, with many planning to vote against the reappointment of Keith Hellawell as chairman. Thousands of Sports Direct warehouse workers are set to receive back pay totalling about £1m after a Guardian investigation revealed the company was effectively paying workers in its warehouse in Derbyshire below the minimum wage.

Sports Direct says on its website that Barlin Delivery Limited may provide international delivery to online purchasers. Barlin was incorporated in February 2015 and is owned by John Ashley. Its registered address is a detached house in a cul-de-sac in the Lincolnshire seaside town of Cleethorpes. Barlin’s terms and conditions say it uses DHL to deliver goods.

Online orders from overseas customers make up about 6% of Sports Direct’s £2.9bn annual revenue and Barlin makes about £300,000 a year from the arrangement, the company told the Financial Times, which first reported Barlin’s work for Sports Direct. This profit is twice the annual salary paid to Dave Forsey, the chief executive of Sports Direct.

John Ashley worked alongside his brother at Sports Direct as head of IT until he left in 2014. Mike Ashley founded Sports Direct in 1982.

The Pensions and Lifetime Savings Association, which represents pension funds with £1tn of assets and shareholdings, warned the arrangement was “yet another unseemly detail at a company where there are already serious concerns about corporate governance and oversight”.

Luke Hildyard, head of stewardship and corporate governance at the PLSA, added: “Sports Direct is an example of a case where shareholder pressure is needed on a range of significant issues.”

Mike Fox, head of sustainable investments at Royal London, which owns 0.18% of Sports Direct, said: “We have long-standing concerns about the governance of the company and have lost confidence in the ability of the non-executive directors to govern the company and protect the interests of minority shareholders.”

Accounting experts said that the existing concerns about Sports Direct mean it may have been prudent to publish the arrangement with John Ashley.

Sarah Wilson, chief executive of Manifest, the shareholder advisory group, said: “Investors don’t like surprises and so look for transparency and business models that are easy to understand.

“The spirit of the law is as important as the letter. Unlike other retailers, Sports Direct’s culture appears to be about minimum compliance – something we can see elsewhere in the annual report in relation to, for example, its strategic review where it publishes a laundry list of risk factors but says very little about how its management systems engage with its responsibilities.”

The address where Barlin Delivery is registered in Cleethorpes is one of the upmarket homes in Hewitts Manor, a 16-house estate sheltered from a busy main road by a six-foot privet hedge.

The large detached brick building, dubbed Richmond House, boasts a mock Tudor frontage and a Victorian-style street lantern outside the front door, as well as a neatly kept front garden.

Neighbours said that a woman named “Maggie” lived there but that they did not think John Ashley was living at the property. Ashley’s co-director at Barlin is listed as a Margaret Brown.

Sports Direct said the tie-up with Barlin allowed it to “derisk” its overseas delivery services.

The company said: “Sports Direct took professional advice at the time (and subsequently) as to the most efficient way to structure its operations so that it could satisfy the following objectives –maximise its internet sales, deliver value to its customers, de-risk the distribution logistics.

“The result of this exercise was to set up a company outside the group in order to deliver some of the services required in the successful running of an internet operation. Barlin Delivery was the company chosen to carry out this role. Barlin arranges all international deliveries, including dealing with the courier companies, with undelivered packages and returns.”