What's behind the scandal?
It’s been an eventful week for the board of Patisserie Valerie – it’s executive chairman Luke Johnson describing it as the “most harrowing” of his life. As far as Johnson knew walking into work last Tuesday, it was business as usual – until the company was hit by the revelation there was a £20m hole in its accounts. The story quickly reached the press, the “potentially fraudulent” irregularities taking a scandalous twist with the arrest of the company’s financial director, Chris Marsh.
Why was Chris Marsh arrested?
On Tuesday of last week, Patisserie Valerie boss Luke Johnson discovered the company’s accounts had been frozen – and from then on things began to unravel. Johnson was told by the company’s chief executive, Paul May, that rather than having the expected £28.8m in the bank, Patisserie Valerie had debts of almost £10m; more than £9m of debt having been found in two secret overdrafts. Finance boss Chris Marsh was promptly suspended from the company – and then arrested – the Serious Fraud Office confirming it had opened an investigation into an unnamed individual. While Marsh was released on bail, the papers lined up to comment on the fate of Patisserie Valerie – and Luke Johnson scrambled to save the company.
Will Patisserie Valerie survive?
By Thursday of last week, Patisserie Valerie announced it needed an “immediate injection of capital” to save the company – and the jobs of the 2,800 people it employs across the UK. On Friday, the company said it had reviewed its finances and expected to earn £12m from its £120m sales in the year to September – a far cry from last year’s earnings of £25.6m on sales of £114m. The same day, investors backed a rights issue offering existing shareholders a dirt-cheap price of 50p-a share. A rescue plan for the bakery was thrown together, the new shares raising £15m and Johnson lending £20m of his own cash to keep the chain afloat.
Patisserie Valerie survived, but it has paid the price. Friday’s rights issue saw the company valued at £68m, its market value crashing down by £378m in less than 7 days.
Who's to blame for the crisis?
As rumours circulated about Chris Marsh’s involvement in the scandal, one question became clear: in such a huge company, how could this have happened? On Monday morning, Patisserie Valerie’s chief-executive Paul May stepped down, under-fire for how such serious accounting holes had gone unnoticed. The board faced criticism for being in the dark on the two overdrafts running up massive company debts. The finger was even pointed at Johnson, amid claims he was “stretched too thin” sitting on the boards of Gail’s bakery, chairing the Institute of Cancer Research and heading up Risk Capital Partners. Above all, questions are being thrown at the company’s auditors, who gave Patisserie Valerie a clean bill of health in its most recent financial report. The chain is rumoured to be weighing up suing its auditors, Grant Thorton, over their apparent failure to spot the multi-million-pound black hole on its books.
Only time will reveal the full extent of the scandal, but Luke Johnson has already said the publishing of the company’s accounts would “not be a pretty sight.” As Patisserie Valerie – and the papers – await the findings of the fraud investigation, the chain is still open for business. For now, at least, Johnson is looking forward – telling The Sunday Times: “there’s a lot of work to be done.”