The cake and cafe chain Patisserie Valerie was locked in talks about securing a lifeline from its banks on Friday after saying it had uncovered “significant manipulation” of its books.
A standstill of the group’s banking facilities, protecting it from action to recover debts, was set to expire on Friday night. The company, which has previously said it wanted to extend the standstill to last a year, had been expected to make an announcement before the market closed, but talks had not finished.
The business, which operates 200 cafes and employs 3,000 staff, said earlier this week it had hired the advisory firm KPMG to consider all options, raising speculation it could be facing insolvency, mass store closures or a debt-for-equity swap.
In a statement to the stock market on Wednesday, Patisserie Valerie said it was now clear that profits would be “materially below” the estimated £12m when the company first flagged fears of fraud in October. It said cash flow was also much lower than expected.
Shareholders told the Guardian they were flummoxed as to how a simple cash-based business with less than £10m of debts when it raised £15m from shareholders before Christmas was still struggling to finalise a deal with its banks.
Luke Johnson, the multimillionaire chairman of the business, was forced to put £20m of his own money into the firm to keep it afloat after the uncovering of potentially fraudulent accounting irregularities left it teetering on the brink. Johnson was paid back £10m after other shareholders later put up £15m in new funds.
“Things must have got demonstrably worse. They are collecting cash every day and have very little in the way of inventory. [Stock] is going in and out as soon as possible,” one said. He suggested Johnson should be able to keep the business afloat by putting in more cash if necessary.
Another shareholder expressed shock that a business which was expected to make profits of close to £30m this year was now likely to make less than £6m. “The discrepancy from where we were to where we are now is massive for such a small company,” he said.
Shareholders in Patisserie Valerie, which was valued at £450m before its profits “black hole” was uncovered, are braced for considerable losses. Shares were suspended in October and have yet to restart trading.
The company’s finance director, Chris Marsh, was arrested by Hertfordshire police and bailed in October. He resigned in the same month.
The Serious Fraud Office has confirmed that 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.