Patisserie Valerie collapses into administration putting 2,800 jobs at risk

Cake chain calls in administrators after failing to recover from accounting scandal

Ben Chapman
Tuesday 22 January 2019 18:17
Patisserie Valerie finance chief arrested after black hole found in accounts

Patisserie Valerie has collapsed into administration putting 2,800 jobs at risk after the cake chain failed to secure a lending lifeline from banks.

The company had been in trouble since uncovering a £20m hole in its books last October resulting from “significant, and potentially fraudulent, accounting irregularities”.

Last week, the scandal deepened when Patisserie Valerie announced that forensic accountants had discovered "thousands of false entries into the company’s ledgers”.

In a statement to markets on Tuesday the company said that as a "direct result of the significant fraud" it had been unable to renew its bank facilities and did not have enough money to continue trading.

KPMG has been appointed as administrator.

Investors had hoped banks would renew the company's lending facilities after a standstill that had prevented creditors from recovering debts ended on Friday.

Chairman Luke Johnson has extended an unsecured, interest-free loan to help ensure that the January wages are paid to all staff working in the ongoing business, the company added.

The loan will also assist the administrators in trading as many profitable stores as possible while a sale process is undertaken.

The collapse marks an extraordinarily rapid change in fortunes for a company that had been valued at close to half a billion pounds before problems with the accounts emerged.

A rescue plan was passed by shareholders in November, resulting in the issue of £15m worth of new shares, while Mr Johnson put in £20m of his own money but it was not enough to keep the company afloat.

Yet again serious questions have been raised about the role of an auditor in signing off the accounts of a listed company without spotting huge problems. Patisserie Valerie's auditor Grant Thornton is under investigation by the Financial Reporting Council over its work on the company's accounts from 2015 to 2017.

Last week Patisserie Valerie revealed that KPMG had been hired to review all options for the future of the business after finding that the irregularities in the books were "devastating" and that cashflow and profitability were likely worse than previously thought.

Seventy stores have already closed and the future for the 200 that remain is uncertain. Any potential buyer for the company would have to take a" big leap of faith" that the business can survive because they cannot assume that the figures are a true state of affairs, said Nick Burchett, Head of UK Equities at Cavendish which holds Patisserie Valerie shares.

“As the administrators pick through the bones of the business, it's commendable to see that Luke Johnson remained the last man from the original management to sink with his ship as it goes down and make sure that employees are at least remunerated in January post the Christmas festivities," Mr Burchett said.

Labour MP Rachel Reeves, chair of the Business, Energy and Industrial Strategy Committee, said the announcement was terrible news for Patisserie Valerie’s staff, shareholders and suppliers.

"The extraordinary black-hole in Patisserie Valerie’s accounts which has led to this administration raises grave corporate governance concerns and poses serious questions regarding the effectiveness of the auditor and the current arrangements for regulation," said Ms Reeves.

"The BEIS Committee will picking up these issues in the context of our current inquiry on the future of audit.”

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