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