Baking bad: Patisserie Valerie collapses into administration
Patisserie Valerie has collapsed into administration after it was unable to extend its bank facilities due to “significant fraud” in the company’s past accounts.
The Patisserie Valerie saga started last year after accounting irregularities left the nearly century-old business saddled with a tax bill of more than £1m, a winding-up order and a £20m hole in its accounts. The irregularities had led it to significantly overstate its cash position for years.
The holding company behind Patisserie Valerie quickly suspended its shares, and with it the company’s FD Chris Marsh. Marsh’s departure was followed by chief exec Paul May, and a new senior leadership team was drafted in to bring the business back from the brink.
A collapse was avoided through a unsecured £20m loan from the company’s chairman, entrepreneur Luke Johnson, and the company raised another £15m from its shareholders by issuing new shares.
Just over a week ago, interim CFO Nick Perrin offered a sanguine take on the company’s future in a written response to Business, Energy and Industrial Strategy Committee chair, Rachel Reeves MP.
Perrin indicated that repairs of Patisserie Valerie’s financial situation were well underway, but the going was slow. “This is a complex and time-consuming task,” Perrin wrote. “We are gradually ensuring that overdue payments are made and that terms agreed with suppliers are adhered to, but there remains much to do to complete this task.”
Perrin’s careful optimism quickly dissipated, however. In a company update on 16 January, Patisserie Valerie said the company's forensic accountants had “revealed that the misstatement of its accounts was extensive, involving very significant manipulation of the balance sheet and profit and loss accounts.
“Among other manipulations, this involved thousands of false entries into the Company's ledgers. It will take some time before a reliable trading outlook can be completed while the above work streams progress.
“The initial indications from the work carried out to date is that the cash flow and profitability of the business have been overstated in the past and is materially below that announced in the trading update on 12 October 2018, which was based on limited work carried out over a 48-hour period.”
This discovery appears to have been the coup de grâce for the ailing business, as discussions with its bank fell apart because of the past fraud. According to Simon Bittlestone, the CEO of MetaPraxis, the late discovery of the fraud “is categoric proof that its management information was simply not good enough”.
“Its accounting system had become so complex that it hid any understanding of the underlying business performance. The fact is that if those not implicated in the scandal had effective management information that allowed them to cut through the noise, they would have spotted such colossal mistakes far earlier.”
The travails and eventual collapse of Patisserie Valerie has also been an ignominious episode for its erstwhile auditor, Grant Thornton. The auditor failed to flag the irregularities, for which it could now face serious consequences.
The cakemaker’s collapse leaves more than 3,000 jobs at risk, and about 70 of the cafe group’s nearly 200 stores and concessions will close immediately, with the loss of about 900 jobs.
Patisserie Valerie’s directors have appointed KPMG as administrators to the company and its various subsidiaries.
Commenting on the administration, Rachel Reeves said: “This is terrible news for Patisserie Valerie’s staff, shareholders and suppliers. I hope the administrators will make every effort to safeguard jobs and protect the interests of suppliers.
“The extraordinary black-hole in Patisserie Valerie’s accounts which has led to this administration raises grave corporate governance concerns and poses serious questions regarding the effectiveness of the auditor and the current arrangements for regulation. The BEIS Committee will picking up these issues in the context of our current inquiry on the future of audit.”