The cake chain Pattiserie Valerie is teetering on the brink after accounting irregularities left it saddled with a £1m tax bill and winding-up order.
The holding company behind Patisserie Valerie has suspended its shares, and with it the company’s FD Chris Marsh, as it undertakes an internal investigation. The accounting black hole, according to a report by Sky News, amounts to over £20m.
The report added that despite Marsh being suspended from his role, there was no suggestion of him being accused of wrongdoing. But according to Kate Coles, the former group financial controller at Graze and director at Enhance, a coaching business for FDs, whether he knew about the irregularities or not, “neither option is great”.
“Not knowing about an irregularity is fractionally less terrible - the moral compass of the CFO remains intact - but it still raises serious questions over their competence and fitness to hold office,” said Coles.
“What were the deficiencies in the control environment that led to this irregularity? Was it a deliberate fraud by someone else in the business, and why was it not picked up? Was it an oversight – and how did one of such magnitude slip past both senior management and the auditors?”
“We always presume innocent until proven guilty: unfortunately, in this situation, being innocent of deliberate fraud still carries a conviction of being guilty of incompetence.”
Luke Johnson, the chairman of Patisserie Holdings and one of the UK’s most well-known entrepreneurs, said the irregularities have “significantly impacted” the company's cash position and may lead to a material change in its overall financial position.
He added, "We are all deeply concerned about this news and the potential impact on the business. We are determined to understand the full details of what has happened and will communicate these to investors and stakeholders as soon as possible."
HMRC’s winding up petition is another twist in the tale. According to a trading update filed yesterday, HMRC filed the petition on 14 September 2018. But directors were unaware of this development until now.
A second trading update released by Patisserie Valerie clarified that the petition relates to "sums due to HMRC of approximately £1.14 million," with a hearing date listed for 31 October 2018.
Patisserie Valerie began its life in 1926, and the 92-year-old chain has over 200 locations across the UK. Johnson’s Risk Capital firm bought a controlling stake in 2006 and floated the business on the AIM in 2014.
In its last trading update before the accounting irregularities emerged, Patisserie Valerie reported pre-tax profits of just over £11m for the six months ending on March 14, a 14% improvement year-on-year and revenues were up 9% to just over £60m.