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How did it come to this? Patisserie Valerie left begging for money after ‘crazy’ 48 hours

The management, investors and even short-sellers have all been caught out by the sudden change in the company’s fortunes
chefs with pies
Patisserie Holdings needs to pay a £1.14mln by the end of the month or face being wound up

It has been an incredible 48 hours for Patisserie Holdings PLC (LON:CAKE), the parent company of Patisserie Valerie, which has left the cake shop chain teetering on the brink of insolvency.

On Wednesday morning, the company suspended its shares – and its chief financial officer Chris Marsh – while it investigated “significant, and potentially fraudulent, accounting irregularities”.

READ: Patisserie Valerie shares suspended amid potential fraud investigation

Executive chairman and renowned entrepreneur Luke Johnson said he was “deeply concerned” about the situation as he parachuted in a specialist team from Big Four accountant PwC to look deeper into its books.

A few hours later and things got even worse when Patisserie revealed it had been hit with a winding up order from the UK tax office, which claims it is owed more than £1mln in unpaid taxes.

By this time, the crack team of accountants were deep into the company’s books and the crisis deepened on Thursday when their initial findings were published.

Patisserie warned it would need an “immediate injection of capital” if it was to avoid going under given the “material shortfall” between what it said its financial position was, and what it actually is.

READ: Patisserie Valerie facing fight for survival as HMRC issues winding up petition 

In its interim report back in May, the company had a net cash surplus of £28.8mln, so questions will be asked where that has gone.

The saga is a pie in the face for AIM, which has been working to rid itself of its ‘casino’ reputation.

Patisserie Valerie was one of the junior market’s highest-profile constituents that, along with the likes of ASOS plc (LON:ASC), Boohoo PLC (LON:BOO) and Fevertree Drinks PLC (LON:FEVR), had boosted AIM’s credibility of late.

Investors have been caught out too, even some of the big ones such as Aberdeen Standard Investments which called it an “entirely unforeseen situation”.

Events seem to have taken short sellers – those who profit from a stock’s fall and generally spot troubles before others – by surprise too, with showing that no funds were betting against the firm.

Everybody caught out

It wasn’t just the market in the dark though, management seemed to be completely unaware too.

In the first statement on Wednesday, the company said it only became aware of the black hole in its accounts the day before, while bosses also claimed they only found out about the unpaid tax bill until shortly before issuing the second press release.

That in itself will raise questions of the board, particularly Luke Johnson, the executive chairman and majority shareholder.

Fingers will also be pointed at Patisserie’s auditors, Grant Thornton, which gave it a clean bill of health only this summer.

In fairness to them, it is not yet clear whether it was Grant Thornton that highlighted the issues as part of its audit of the full-year numbers, which are due to be published next month.

In truth, little is likely to be known before the full findings of the investigation are released, and even those close to the company aren’t entirely sure of the exact details of what’s going on.

Once thing is for sure though, investors are likely to require something a little stronger than a pot of tea and a slice of cake to get over this debacle.

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