The multi-millionaire chairman of Patisserie Valerie is pumping £20m of his own cash into the stricken cake and cafe chain to keep it in business after “fraudulent activity” was uncovered that left the business teetering on the brink.

Details of the proposed emergency rescue plan came hours after it emerged that the finance director of Patisserie Holdings, which has over 200 cafes and nearly 3,000 staff, had been arrested at his home by police.

Chris Marsh, who joined the company in 2006, was arrested on Thursday night and has been bailed.

Hertfordshire police, who declined to name the individual, said a 44-year-old man from St Albans, where Marsh lives, had been arrested on suspicion of fraud by false representation.

The Serious Fraud Office confirmed it has opened a criminal investigation into an individual but said it could give no further information.

On Friday afternoon, Patisserie Holdings said it needed at least £20m in new cash to avoid calling in administrators. It revealed that historical statements about its finances “were mis-stated and subject to fraudulent activity and accounting irregularities”.

The company said an initial investigation into its accounts showed that instead of having £28m in the bank, as it last reported, Patisserie Holdings is nearly £10m in debt.

It said annual underlying profits “could be” £12m in the year to 19 September compared with £26m reported last year.

The stock exchange-listed business – which was valued at £450m only four days ago – has raised £15m from its shareholders by issuing new shares.

To keep the company trading until the paperwork is done, chairman Luke Johnson, an entrepreneur who owns 37% of Patisserie Holdings, is stumping up £20m in loans. Half will be interest free and the cafe chain has three years to pay it back. Half will be repaid when the share placings have been completed.

Patisserie Holdings said the new funds would be used to pay immediate debts – including money owed to HMRC and suppliers. It said it hoped to agree a “standstill” deal with lenders, so they take no action to recover other money owed for 12 months.

The statement warned that previous financial statements were likely to have been wrong and if it uncovers “any further findings of financial irregularity” there could be more and bigger losses.

Marsh was suspended on Tuesday night after the cafe and cake chain revealed “significant and potentially fraudulent” accounting irregularities.

Accountants from PwC are carrying out a forensic examination of the group’s accounts as it tries to accurately assess the scale of the accounting black hole. Shares in the company remain suspended.

One employee told the Guardian that staff had been asked to pay for deliveries with cash from the tills on Friday as they worried about getting paid. She said: “There’s a big facade that everything is hunky dory and if you ask questions you are immediately shut down. The only thing we have been told is not to talk to customers or journalists. There’s a lot of European staff and they are the most vulnerable because it is not being explained to them.”

At least two London stores had closed on Friday after action by landlords. A sign in the window of the Hammersmith outlet said the lease had been forfeited because of non-payment of rents. Other landlords told the Guardian that they had been paid in September and an adviser to property owners said its clients were “waiting and seeing” rather than taking aggressive action.

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The accountancy watchdog, the Financial Reporting Council, said it was “looking into this matter carefully and will give full consideration to further action as more facts become available”. The City watchdog, the Financial Conduct Authority, is also expected to examine the case.

The company’s directors have admitted its main trading subsidiary faces a winding-up petition from HMRC over a £1m unpaid tax bill. The petition was filed on 14 September but the directors were unaware of its existence until earlier this week. It is expected to be heard in court on 31 October.

Marsh sold share options in July, generating a £700,000 profit.