Patisserie Valerie collapses into administration as rescue talks fail

Troubled cafe chain Patisserie Valerie has collapsed into administration after the failure of rescue talks with banks.

The company, which has almost 200 outlets and employs 3,000 people, said it did not have enough money to meet its debts.

Administrators from KPMG said 70 stores will close immediately, meaning a “significant number of redundancies”.

In October, Patisserie Valerie uncovered “significant, and potentially fraudulent, accounting irregularities”.

The company’s biggest shareholder and chairman, Luke Johnson, had been in talks to extend a cash lifeline from HSBC and Barclays.

Patisserie Valerie’s statement said that Mr Johnson had personally extended an unsecured, interest-free loan to help ensure that the January wages are paid to all staff working in the business.

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

In addition to Patisserie Valerie, the company’s other brands include Druckers Vienna Patisserie, Philpotts, Baker & Spice and Flour Power City.

Finance director Chris Marsh was arrested after having been suspended by the company when the financial irregularities were uncovered.

Also under investigation, by the Financial Reporting Council, are former Patisserie Valerie auditors Grant Thornton.

• The first cafe was opened on Frith Street in London’s Soho district in 1926
• In 1987 the Scalzo family bought the Old Compton Street store and ran the business
• In 2006, Luke Johnson’s Risk Capital Partners bought a majority stake when it had eight stores.
• Patisserie Valerie was floated on the AIM stock market, for smaller companies, in 2014

KPMG’s administrators Blair Nimmo and David Costley-Wood said about 121 stores would continue to trade while a buyer is sought.

They 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.

“Unfortunately, however, we have had to take the difficult decision to close 70 stores resulting in a significant number of redundancies. We will be working with those affected employees, providing all support and assistance they need.”

The number of job losses is expected to be in the hundreds, but further details were not available because staff have not yet been told.

Shareholders wiped out

Last week, Patisserie Valerie confirmed it had found “extensive” misstatement of its accounts and “very significant manipulation of the balance sheet and profit and loss accounts”.

This includes thousands of false entries in its ledgers, the company said in a statement. Profits and cash flow had been overstated and were “materially below” figures announced in October.

Patisserie Valerie almost ceased trading last year after the discovery of the black hole in the accounts. However, a rescue plan was passed by shareholders in November, resulting in the issue of £15m worth of new shares.

The firm had been in talks with HSBC and Barclays to extend a standstill agreement on its debts, which came to nothing.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the administration was bad news for shareholders.

“Any dim hope investors had of recovering any value from shares they bought in good faith has now been extinguished,” he said. “It’s one thing to see a company’s shares wiped out by poor trading conditions, or even bad management decisions, it’s quite another to see your investment disappear as a result of fraudulent activity.”