More than 3,000 jobs at risk at chain plunged into crisis after £40m black hole in accounts

Patisserie Valerie has collapsed into administration, putting more than 3,000 jobs at risk, after failing to secure a financial lifeline from its banks.

About 70 of the cafe group’s nearly 200 stores and concessions will close immediately, with the loss of about 900 jobs.

Patisserie Holdings, the parent company that also owns the Druckers Vienna Patisserie, Philpotts, Baker & Spice and Flour Power City brands, has been in crisis since October, when a £40m black hole in its finances was blamed on “potentially fraudulent” accounting irregularities.

Blair Nimmo of KPMG, a joint administrator of the business, said: “Our intention is to continue trading across the profitable stores, as collectively the brands have a strong presence on the high street and have proven very popular with consumers. At the same time, we will be seeking a buyer for the business and are hopeful of a good level of interest.”

Last week, the company admitted its finances were in even worse shape than it had previously thought. Patisserie Valerie said forensic accountants had found “thousands of false entries into the company’s ledgers”.

In a statement to the stock market on Tuesday, Patisserie Holdings said that as a “direct result of the significant fraud”, it had been unable to renew its bank facilities and “therefore regrettably, the business does not have sufficient funding to meet its liabilities”.

The company’s chairman, Luke Johnson, said he had personally extended a £3m interest-free loan to it to help ensure January wages are paid to all staff.

“This loan will also assist the administrators in trading as many profitable stores as possible while a sale process is undertaken,” a statement said.

The appointment of administrators wipes out the value of Johnson’s and all other shareholders’ investment in the stock market-listed business, which was valued at £450m before it flagged up the potential fraud.

The company’s finance director, Chris Marsh, was arrested by Hertfordshire police and bailed in October. He resigned that month.

Timeline Patisserie Valerie – timeline Show Hide The 93-year-old chain Patisserie Valerie has fallen into administration after a turbulent recent few months. 10 October Patisserie Holdings, the owner of Patisserie Valerie, reveals a multimillion-pound accounting black hole and said its main trading subsidiary – Stonebeach - is facing a winding up order from HMRC. Trading in the Aim-listed shares, which had valued the company at £450m, are suspended. 12 October Luke Johnson, the chairman of Patisserie Valerie, agrees to pump £20m of his own cash into the chain to keep it in business amid claims of “fraudulent activity”. Johnson, who made his name by rapidly growing the Pizza Express chain, later describes the scandal as a “nightmare” after the board said it was unaware of millions of pounds of bank loans. 26 October The finance director, Chris Marsh, resigns after being arrested and bailed by Hertfordshire police. The Serious Fraud Office confirms it had opened an investigation into an unnamed individual. 15 November Paul May, chief executive, is replaced by turnaround specialist Steve Francis. Johnson remains in his role as chairman despite shareholder criticisms, but agrees to waive his £60,000 salary. 16 January Patisserie Valerie says it had found “thousands of false entries into the company’s ledgers”, resulting in profits “materially below” the numbers reported when the black hole was first found. Forensic accountants say they had found “very significant manipulation” of the chain’s books.

22 January Patisserie Holdings enters administration after failing to extend banking facilities with its lenders. About 70 cafes close, including the entire Druckers chain, with the loss of just over 900 jobs. 29 January The Guardian reveals that Patisserie Valerie's store sales information going back to January 2013 and cash position data going back to September 2014 could be unreliable, according to documents sent to potential buyers. 8 February Mike Ashley's Sports Direct says it is making a surprise bid for Patisserie Valerie, but changes his mind two days later.

14 February Ireland's Causeway Capital Partners buys 96 Patisserie Valerie cafes and Spar operator AF Blakemore buys 21 Philpotts sandwich shops. The deals raise £13m and save 2,000 jobs.



The Serious Fraud Office has confirmed it has opened a criminal investigation into an individual but has not given further information. The Financial Reporting Council has said it is also investigating Marsh and the accountancy firm Grant Thornton for its role as auditor to Patisserie Valerie.

The crisis forced Johnson to put £20m of his own money into an emergency refinancing to keep the company afloat. He was paid back £10m after other shareholders agreed to inject £15m in new funds.

It is understood Johnson’s initial £10m loan was not secured against Patisserie Valerie’s assets, so he will have to join other creditors, including suppliers and the group’s main lenders, HSBC and Barclays, whose loans were also not secured, in waiting to see if administrators can raise funds to pay them back.

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A standstill of the group’s banking facilities, which protected it from action to recover debts, expired on Friday, since which time investors have been waiting nervously for the outcome of talks.

Paul Mumford of Cavendish Asset Management, which put an additional £100,000 into Patisserie Valerie as part of a £15m rescue fundraising deal in November, said the administration was “a big disappointment”.

“I feel that perhaps there could have been a different solution,” he said. Mumford suggested shareholders that participated in the fundraising would be “a bit miffed” they did so on the understanding that the company would make profits of £12m, a figure Patisserie Valerie later said further investigation had revealed to be far too high.

Chris Boxall at Fundamental Asset Management, another shareholder, said the collapse of Patisserie Valerie was “absolutely disgraceful”. He said he was considering launching legal proceedings and wanted to encourage other shareholders to join in.

“You can’t have a business making £30m squeaky clean in September supplying coffee and cakes disappearing before February,” Boxall said. “This is ridiculous … in a system that is supposed to be robust. Where are the directors?”

Quick guide Why are UK high street retailers in trouble? Show Hide What’s the problem? Physical retailers have been hit by a combination of changing habits, rising costs and broader economic problems as well as unseasonable weather. In the past few years names such as Mothercare, Karen Millen, Toys R Us, Maplin and Poundworld have disappeared from the UK high street as a result. In terms of habits, shoppers are switching to buying online. Companies such as Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores. At the same time, there is a move away from buying "stuff" as more people live in smaller homes and rent rather than buy. Uncertainty about the economy has also slowed the housing market and linked makeovers of homes. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence. What help do retailers need? Retailers with a high street presence want the government to change business rates to even up the tax burden with online players and to adapt more quickly to the rapidly changing market. They also want more political certainty as the potential for a no-deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs at the end of this year. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges, which they say put off shoppers. What is the government doing? In the December 2019 Queen's speech, the government announced plans for further reform of business rates including more frequent revaluations and increasing the discount for small retailers, pubs, cinemas and music venues to 50% from one-third. It has also set up a £675m "future high streets fund" under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas. What is the outlook in 2020? Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further potential Brexit wobbles to come – retailers are facing another tough year in 2020. The latest rise in the national minimum wage in April will also add to costs and hit profits. On the plus side, there are hopes of a boost to the housing market from increased certainty about Brexit after the general election. There are also signs that the shift to online shopping is slowing, potentially easing the pressure on high streets. Sarah Butler Photograph: Matthew Horwood/Getty Images Europe

The collapse comes amid a tough time on the high street as slowing consumer spending and rising costs have prompted a swathe of restaurant groups and retailers to falter.

HMV went into administration just after Christmas and high street players including New Look, Carluccio’s, Byron and Carpetright have used an insolvency procedure to close dozens of stores.

Rachel Reeves, the chairwoman of the business, energy and industrial strategy select committee, said Patisserie Valerie’s administration raised “serious questions”.

“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,” she said.