Confectionery faces financial problems

Confectionery owner is unaware of insolvency action by suspending action over 'potentially fraudulent' financial irregularities

Confectionery owner Valerie was plunged into financial crisis after revealing a multi-million pound accounting black hole and that her main trading subsidiary was facing a liquidation order.

The 92-year-old cake chain, which has more than 200 stores, halted trading in its shares after revealing “potentially fraudulent” financial irregularities that, according to Sky News, could amount to more than £20 million.

Just hours after the suspension, Patisserie Holdings said its board was unaware that HM Revenue and Customs had filed a winding-up petition in the high court against Stonebeach Confectionery over an unpaid tax charge of 1,14 million pounds.

Patisserie Holdings is listed on the Aim junior share market and has a market valuation of approximately £450m.

The company's head of finance, Chris Marsh, who was one of Stonebeach's two directors, has been suspended from his role. Marsh joined the company in 2006 and in July made a profit of almost £700 after selling shares granted under a long-term incentive scheme.

In announcing the suspension of shares on Wednesday, Patisserie Holdings said it had been notified of “significant and potentially fraudulent accounting irregularities and therefore a potential material misstatement of the company's accounts”. It said this significantly affected its cash position and could lead to a “material change” in its overall financial position.

It later issued a statement saying its board had just become aware of HMRC's action against Stonebeach. The petition, which was filed on September 14, could lead to the subsidiary being declared insolvent and closed. The action was announced in the London Gazette, the official public record, on Friday and is due to be heard in court on October 31. Stonebeach's second director is Paul May, chief executive of Patisserie Valerie.

Serial entrepreneur and Sunday Times business columnist Luke Johnson is chairman of the holding company. He is the group's largest shareholder, with a 37% stake – worth £165m at the time the shares were suspended.

On Wednesday, Johnson said: “We are all deeply concerned about this news and the potential impact on the business. “We are determined to understand all the details of what happened and communicate them to investors and shareholders as soon as possible.”

An insolvency expert said the winding-up petition would allow other creditors to pay their debts and could lead banks to freeze Stonebeach's accounts and credit insurers to withdraw cover for its suppliers. The expert said all transactions from October 5 would now be subject to scrutiny and that directors could be held liable for trading while insolvent.

Pattiserie Holdings said it was “in communication with HMRC with a view to addressing the petition.

It is understood that Johnson is carrying out an internal investigation, while PricewaterhouseCoopers is believed to have been called in to carry out a review of the accounts. Patisserie Holdings auditor Grant Thornton said it would be inappropriate to comment because of his duty of client confidentiality.

Regulators, the Financial Reporting Council and the Financial Conduct Authority, are expected to look into the issues at Patisserie Valerie. The Serious Fraud Office could also investigate the matter. All three bodies declined to comment on whether they were still in contact with the company.

In May, the company reported pre-tax profits of just over £11 million for the six months ending March 14 – 14% more than the previous year. Revenues rose 9% to just over £60m, it said at the time.

Alongside ownership of the store, Patisserie Valerie has a partnership with Sainsbury's, with branded counters present in the supermarket.

The company began in 1926 when Madame Valerie, a Belgian national, opened a store in Soho, central London. In 1987, it was purchased by the Scalzo brothers, who opened several other stores. Johnson's venture capital firm bought a controlling stake in 2006, and floated the business on the stock market in 2014, with shares priced at 170p. The shares were trading at 429p shortly before being suspended.

The problems at Patisserie Holdings come a little more than a month after Johnson published a newspaper column with a “beginner’s guide to tried-and-true scams.” In the piece, he said, “even smart investors sometimes fall prey to the most ambitious fraudsters.”