A shadow has been cast over the future of café chain Patisserie Valerie after the discovery of ‘significant and potentially fraudulent’ irregularities within the accounts of its owner Patisserie Holdings by the company’s board of directors.
Patisserie Holdings shares, listed on the AIM submarket of the London Stock Exchange designed for smaller companies, were suspended at 429.5p per share.
Investigations are underway concerning the misstatement of the company’s financial position, potentially spanning over previous years. The board announced the company required emergency capital to continue operation, with a net debt of £9.8m. This is a harsh contrast to the £28m of net cash reported in half-year results earlier this year. It is alleged that the company had a total overdraft of £10m on two separate credit lines from banks Barclays and HSBC while the board of directors were unaware.
Tax authority HMRC has also started a petition to ‘wind up’ the company based on an unpaid tax bill of £1.14m. If HMRC wins their case at the High Court, Patisserie Holdings would be forcibly liquidated with its assets distributed to creditors.
Upon discovery of the accounting misstatements, the directors of Patisserie Holdings claimed to see no scope for business to continue trading in its current form. Hammersmith and Edgeware Road cafés in London have already been closed as landlords claim rent has not been paid. Many more of the chain’s approximately 200 branches across the UK could be next to fall, putting the employment prospects of its 3,000 staff members at risk.
The finance director, Chris Marsh, was suspended from his role before being arrested by the police. He was later released on bail without charge. Recent developments suggest that Marsh and chief executive Paul May made £2.9m from a long-term investment plan based on profit figures that are now being revised. The pair could purchase discounted shares if the growth in earnings per share reached a certain level, agreed on by shareholders. Patisserie Valerie is a lot less profitable than originally believed, and the actual earnings may not have been enough for the two directors to receive the maximum pay-out.
Owner Luke Johnson has lent the company a total of £20m of his own money to help it meet its immediate liabilities. The company will also be holding a discounted share sale set to raise a further £15.7m, selling around 31.45m shares for only 50p. This is a deep discount compared to the share price before the suspension of 429.5p per share.
The situation has raised a lot of questions to auditors Grant Thornton who gave the green light to the accounts of Patisserie Holdings. These questions may be left unanswered for the foreseeable future as the accounting firm has declined to comment in the interests of client confidentiality. So grab your cakes, iced buns and pastry’s before it’s too late!
Daniel Farrington