Embattled Grant Thornton vows to fight off £200m Patisserie Valerie lawsuit
Britain’s fifth largest accounting firm is facing a £200m lawsuit over the collapse of Patisserie Valerie amid claims of widespread bookkeeping fraud missed by auditors.
Grant Thornton has promised to “rigorously” defend itself in court over alleged accounting failures related to the collapse of Patisserie Valerie.
The challenger accountancy firm is being sued for £200m by the liquidators of the cake shop, which it audited for more than a decade.
The first set of restructuring and insolvency specialists at KPMG later said the missing total was nearer £95m.
Investigators said false cheques worth millions of pounds had been cashed, along with fraudulent entries in ledgers that had been used to exaggerate the firm’s financial health. Off the books, overdrafts topping £10m had been run up in bank accounts linked to the company.
Several members of the cake shop’s team were suspended when the incidents came to light, as forensic investigators and regulators began poring through the historic audits.
The bakery chain was valued at £450m before the potential fraud was uncovered, and the administration wiped out shareholders.
Liquidators FRP Advisory said Grant Thornton’s negligence in the preparation and conduct of 2014 to 2017 financial statements meant it had insufficient funds to continue trading. It said “accounting failures” were behind the collapse. Lawyers from London firm Mishcon de Reya have been engaged to lead the case against the accountancy firm.
Such large claims against accounting firms in the UK courts are relatively rare; liquidators at Carillion took two years to file a £250m suit against KPMG.
Both the Financial Reporting Council (FRC) the UK accounting regulator, and the Serious Fraud Office are investigating the matter.
“Patisserie Valerie is a case that involves sustained and collusive fraud, including widespread deception of the auditors,” said Grant Thornton in a statement. “The claim ignores the board’s and management’s own failings. As the matter is subject to an ongoing FRC investigation and civil claim, we are unable to comment further.”
FRP Advisory did not offer comment beyond a statement from November which said: “We can confirm that the joint liquidators of companies within the Patisserie Valerie Group have issued a claim for damages against Grant Thornton in respect of their negligent audits of the group companies’ financial statements for the financial periods 30 September 2014 to September 2017 inclusive.”
Patisserie Valerie’s largest creditor is former executive chairman Luke Johnson, who pumped more than £10m of his own money into the firm to stave off collapse.
Johnson told media he had been tricked by a false image of the firm’s health and the optimistic picture painted by Grant Thornton.
“One of the most astonishing aspects of the entire episode is the way in which it seems such an eminent firm had the wool pulled very comprehensively over its eyes,” he said. “They never raised any material issues about the quality of our accounts.”
An FRC spokesperson said: “The FRC’s investigation into the audit of Patisserie Holdings is at an advanced stage and Grant Thornton are continuing to cooperate fully with us. We are not able to provide any further information at this point.”
The SFO is conducting a criminal investigation into the business and accounting practices of individuals associated with Patisserie Holdings PLC, the cake shop’s parent company. Several arrests have been made in relation to this investigation, including one re-arrest.
“The investigation is ongoing and we can give no further information or comment at this time,” the SFO said.