Patisserie Valerie avoids collapse, but it's far from a sweet ending

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Patisserie Valerie’s collapse has been staved off with an emergency cash injection, but the picture remains murky as the company’s ex-FD falls under the spotlight.

Last week, the cake chain Patisserie Valerie hit the headlines after accounting irregularities left it saddled with a tax bill of more than £1m, a winding-up order and a £20m hole in its accounts.

The crisis kicked off last Wednesday when the 92-year old company announced that it had become aware of an HMRC winding-up petition against its principal subsidiary Stonebeach, with the tax authority seeking a payment of £1.14m.

A subsequent internal investigation discovered “significant, and potentially fraudulent” accounting irregularities. Instead of £28m in the bank, as the company had last reported, Patisserie Holdings was nearly £10m in debt.

The company suspended its finance director Chris Marsh pending an investigation -- but carefully avoided apportioning any blame to him. That picture has subsequently changed.

On Friday, a terse statement by Patisserie Holdings confirmed what had widely been reported in the press. Marsh had been arrested by police and had been bailed.

Marsh joined Patisserie Holdings as finance director in 2006. He has 15 years experience as an FD and trained with EY.

That same Friday, Patisserie Holdings said it needed at least £20m to avoid administration. It elaborated that its historical statements about its finances “were misstated and subject to fraudulent activity and accounting irregularities”.

The company’s chairman, entrepreneur Luke Johnson, swooped to the rescue, injecting £20m into the business as a loan. PH has raised another £15m from its shareholders by issuing new shares.

In an interview with the Sunday Times, Johnson said it has been the “most harrowing” week of his life. He also revealed the discovery of two "secret" company bank overdrafts. Johnson told the Times that £9.7m had been spent in two overdrafts set up with HSBC and Barclays.

There’s a way to go yet, but this could well turn into yet another embarrassing audit blunder. Grant Thornton has audited the company's accounts since 2010. PwC has now been hired to analyse the accounts.

GT has remained silent on the matter. But Patisserie Valerie has said it's considering legal action against the firm. Meanwhile, the FRC has stated that its "looking into this matter carefully and will give full consideration to further action as more facts become available".

 

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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15th Oct 2018 17:20

If the company is effectively bust without this £20m cash injection and no-one else will inject the cash, why doesn't he simply pay £20m as a pre-pack or demand most the equity so he can then get more or less the whole company on the cheap (it was worth >£400m a couple of weeks ago I think). I assume as a shrewd businessman he must have got some kind of decent deal like this so the other shareholders are diluted out of existence one way or another.

He can then sue the auditor and make a killing. Sweet.

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to Justin Bryant
16th Oct 2018 13:32

I understand that he has bought shares at a huge discount 50p? as well as providing a loan. perhaps there is a hint of 'noblesse oblige'

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to Justin Bryant
18th Oct 2018 09:58

"Let the unsecured creditors pay the bill"

This amoral approach to business is what the honest businesses have to pay for. The tradesmen and unsecured creditors of PV should never have to pay for someone's personal gain. Ripping them off is not what shrewd businessmen do.

Well done Luke Johnson for not going the money-grabbing route.

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By ShayaG
to BlueNose1812
18th Oct 2018 16:56

I disagree. The past is the past.

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18th Oct 2018 09:58

And HSBC did not pick up from the statutory accounts that it did not tie in with their banking facilities? Last time I looked you had to disclose bank borrowings.

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By ShayaG
18th Oct 2018 17:04

For those interested,

https://beta.companieshouse.gov.uk/company/08963601/filing-history/MzE5N...

Accounts show £5m of liabilities with nil borrowings @ 30/09/17

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28th Oct 2018 14:38

Only just seen this. The following paragraph is just plain wrong.
"The company’s chairman, entrepreneur Luke Johnson, swooped to the rescue, injecting £20m into the business as a loan. PH has raised another £15m from its shareholders by issuing new shares."
1. LJ provided two loans, £10m for 3 years interest free (security to be agreed later according to the RNS), and £10m as a bridging loan pending receipt of cash from the £15m placing. The placing was completed as an accelerated book-build by the NOMAD within hours of the RNS which announced the loans and of the approx. £15m proceeds about £5m will have been available very quickly because the board already had authority to issue the relevant shares, so it's likely only £5m of the bridging loan has been used. The balance of the proceeds of the placing will come in after the EGM which is needed to approve the issue. After the EGM Johnson's loan will only be £10m, not £20m
2. The placing was NOT open to existing shareholders unless they were invited to participate by the NOMAD. Private shareholders never got a chance to participate. This was NOT a rights issue.

So much sloppy reporting of this very serious case, everywhere you look. Private Eye's report was one of the most accurate.

See cakequestions.blogspot.com

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to C.Y.Nical
02nd Nov 2018 09:54

Yes; this has played out exactly how I expected per my above comment (and who can blame him? He's not a charity). See:

http://www.cityam.com/267973/chairman-luke-johnson-reveals-patisserie-va...

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