Patisserie Suspends CFO Amid Accounting Probe, Tax Demand
(Bloomberg) -- U.K. cake baker Patisserie Holdings Plc suspended its chief financial officer after uncovering “significant, and potentially fraudulent, accounting irregularities” and a demand for more than a million pounds in back taxes.
The company, part-owned by entrepreneur Luke Johnson and known for the Patisserie Valerie chain, is conducting an investigation to determine where its finances stand. The shares have been suspended in the meantime, it said in a statement Wednesday.
U.K. tax authorities in September filed a court order seeking 1.14 million pounds ($1.5 million) from Stonebeach Ltd., an operating subsidiary of Patisserie Holdings, the company said in a separate statement. The filing cites a hearing date of Oct. 31, and the company and its advisers are speaking with HM Revenue and Customs about the matter, it said.
“We are all deeply concerned about this news and the potential impact on the business,” said Johnson, a former owner of London’s Ivy restaurant who serves as chairman of Patisserie Holdings. “We are determined to understand the full details of what has happened and will communicate these to investors and stakeholders as soon as possible.”
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CFO Chris Marsh was part of a management team that took the business public in 2014. It’s grown from eight stores in 2006 to 206 locations this year and owns shops such as Druckers Vienna Patisserie and Baker & Spice. Marsh was unavailable for comment, a spokesman said.
Johnson, a frequent writer on entrepreneurship in U.K. newspapers, has a 37 percent stake in the business, valued at around $220 million at the close of trading Tuesday.
Forensic accountants pointed to a discrepancy between the company’s cash and its finance income. Patisserie Holdings reported 28.8 million pounds of cash and cash equivalents at the end of March, and finance income in the preceding six-month period was 1,000 pounds, according to a filing.
“I’d expect a company to make at least 1 percent, or 280,000 pounds, annual finance income,” from the cash position Patisserie reported, said Sid Harding, a senior manager at the London-based Ballamy forensic accountancy firm who has advised hedge funds shorting U.K. companies including collapsed contractor Carillion Plc. “I can’t think of a plausible reason for such a low figure.”
The discrepancy between cash balances and finance income “would require an explanation,” said Paul Nagy, a former analyst at independent researcher CFRA who now runs his own forensic-accounting firm.
Patisserie’s auditors cited revenue recognition as a significant risk in their fiscal year 2017 letter, citing the possibility of misappropriation of cash or cash sales not recorded, Nagy said. Their letter a year earlier didn’t contain this section.
Patisserie officials didn’t immediately respond to a request for comment.
The disclosure of Patisserie Holdings’s accounting irregularities comes amid a crisis in the U.K.’s casual-dining business, with steakhouse chain Gaucho Group Ltd. filing for insolvency earlier this year, after chains like Jamie’s Italian, Byron Hamburgers and Prezzo closed sites.
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