Patisserie Valerie, the British café chain that has found a potential fraud on its accounts, had used up £9.7m on two separate bank credit lines without the board’s knowledge. The revelation adds further confusion over the accounts of the UK high street chain, which shocked investors last week by admitting there had been “significant, and potentially fraudulent” irregularities.
A company spokesperson for Patisserie Holdings, the chain’s parent company, confirmed the discovery of the overdrafts, at Barclays and HSBC. The revelations were first reported by the Sunday Times. Patisserie Valerie secured a lifeline on Friday when the executive chairman of its parent company, Luke Johnson, committed up to £20m of his own cash in loans, and shareholders backed a deeply discounted share sale.
Investigations from the board and criminal authorities have begun into Patisserie Valerie, which has expanded rapidly in recent years from a small chain of London-based cafés. Last week Chris Marsh, finance director, was suspended from his post and arrested by police before being released on bail without charge.
The owner of Patisserie Valerie has said its finance director Chris Marsh was arrested last night and then released on bail. The cafe chain is fighting for survival after revealing on Wednesday it had uncovered “significant, and potentially fraudulent, accounting irregularities”.
a piece of cake
The company said on Friday it had net debt of £9.8m rather than the £28m of cash it recorded at the end of March. Mr Johnson’s cash injection allowed the chain to avoid being forced into administration. The share sale will raise £15.7m from new and existing institutional shareholders. About 31.45m shares were sold for 50 pence each, or 88 per cent below the 429.50p level where they last traded before suspension on Wednesday.
Luke Johnson puts his money where his mouth is Once the share sale is completed in several weeks time, £10m of the proceeds will go to pay back a bridging loan that Mr Johnson gave to the company. The lifeline extended to the cake chain should help protect the jobs of the roughly 2,600 people who work at its 206 shops across the country. On Friday, outward signs of the crisis appeared when landlords closed down the outlets in Hammersmith and Edgware Road, claiming the rent had not been paid.
Some existing shareholders, including fund managers Schroders bought shares in the issuance, as did newcomers such as Miton, an asset manager focused largely on UK small and mid-cap stocks. Mr Johnson is not buying additional shares in the capital raise, so his stake in the company will be diluted down to 29 per cent.
Before the capital raise, Mr Johnson owned 37 per cent of the cake chain, or 38.62m shares that used to be worth £103.9m, according to Bloomberg.
Before the accounting scandal, Patisserie Valerie was one of Mr Johnson’s most successful investments. The shares had more than doubled since listing on London’s junior Aim exchange in May 2014 at 170p per share. Mr Johnson’s private equity vehicle Risk Capital Partners bought an 80 per cent stake in Patisserie Valerie from the Scalzo family in 2006 for £6m.