After news broke last week that Patisserie Valerie was heading towards administration, the situation looked bleak for the bakery’s 206 shops and 2,800 staff. But unlike many of the other recent cases of high street woe, after a substantial cash injection from the company’s executive chairman, this curious case could have a happy ending after all.
An Intriguing Case
The first we heard of this story was the announcement that the bakery and coffee chain, which was originally founded in 1926, could no longer continue to trade in its current form. Accountants PwC had already been put on alert to manage the company’s administration if the firm was unable to secure a substantial rescue package.
The situation was made worse when it was revealed that HMRC had filed a petition to wind up Patisserie Valerie over an unpaid tax bill of £1.14m, which could force the company into compulsory liquidation. Given the frequency of high street failures in recent months, on the surface at least, the collapse of Patisserie Valerie was nothing new. However, for those who had knowledge of the company financials over the last few years, something didn’t add up.
In recent years, despite the headwinds facing the high street and the hospitality sector specifically, the popularity of Patisserie Valerie has soared. The company has posted years of double-digit top-line growth and this continued in its most recent announcement, with revenue over the six months to March up by 9 percent and profit before tax up 14.2 percent to £11.1m. So what went wrong?
Following the initial announcement about Valerie Patisserie’s struggles, the company then released a further statement that said: “There is a material shortfall between the reported financial status and the current financial status of the business.”
It emerged that a raft of advisers including forensic accountants and lawyers had been assisting the company in getting to the bottom of a “potentially fraudulent” accounting misstatement. That had led to the suspension and subsequent arrest of Chris Marsh, the company’s chief financial officer, following the discovery that rather than having £28m in reserves as reported, the firm was actually £9.8m in debt. That had left a £40m hole in its accounts.
A Last-minute Lifeline
With the company left in dire straits, the chain was given a lifeline in the form of a £20m loan from Luke Johnson, the executive chairman of Patisserie Holdings. A bridging loan facility of £10m was also provided and new shares have been issued by the firm allowing a further £15m to be raised. There are also rumours that the chain is considering suing accountants Grant Thornton for failing to spot the £40m hole.
It is hoped that this last-minute cash injection will help to save the company from administration and safeguard the jobs of the firm’s employees. Johnson said: “2,800 jobs were at stake, there were 12 years of effort I and colleagues had put into the business, and the board was determined not to allow the business to go into administration”.