There’s been a new twist to the ever-deepening Patisserie Valerie accounting scandal as the Serious Fraud Office (SFO) arrested five people in connection with the cake chain’s financial collapse.
Late last year, the popular bakery chain Patisserie Valerie was rocked after it discovered a financial black hole in its accounts. On top of that a £1m plus tax bill was left unpaid, prompting a winding-up order from HMRC.
The company’s collapse was prevented at the last minute by a £20m unsecured loan from its chairman Luke Johnson and an extra £15m from its shareholders by issuing new shares. But even this wasn’t enough to save the nearly 100-year old business.
In January, the chain slid into administration after it was unable to extend its bank facilities as the true scale of the “significant fraud” in the company’s past accounts came to light. At the time, Patisserie Valerie had 206 outlets and 3,000 staff.
Interim CFO Nick Perrin explained in a company update that 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.”
By March of this year, KPMG, the acting administrators, announced the accounting black hole totalled £94m, more than double the initial estimates.
Patisserie Valerie’s former finance director, Chris Marsh, was the first person to fall under the investigative spotlight. Marsh was arrested and released on bail in October. But as the scale of the irregularities has grown, so has the scope of the investigation.
Now, the further five arrests deepen the intrigue.
“On Tuesday 18 June, as part of a joint operation with the Hertfordshire, Leicestershire and Metropolitan Police Services, the SFO arrested and questioned five people in connection with the ongoing investigation into individuals associated with Patisserie Holdings,” the SFO said in a statement.
Causeway Capital, an Irish private equity firm that bough Patisserie Valerie after it fell into administration, said the arrests do “not relate to any current employees”. The business still has 96 shops in operation.
Last week, Causeway told the BBC about the full extent of Patisserie Valerie’s dysfunction when they acquired the company. Matt Scaife, a partner at Causeway, detailed a culture of relentless cost-cutting, including the replacement butter in its puff pastry with margarine.
About Francois Badenhorst
I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter.