Patisserie Valerie finds accounting errors, suspends CFO

(Reuters) - The owner of British café chain Patisserie Valerie was plunged into turmoil on Wednesday after discovering accounting irregularities and that tax authorities were pursuing its main trading arm for more than 1 million pounds ($1.3 million).

Patisserie Holdings CAKEP.L said it had suspended its finance chief Chris Marsh, halted trading in its London-listed shares, and launched an investigation after its board directors were notified on Tuesday of "significant, and potentially fraudulent, accounting irregularities."

“This has significantly impacted the company’s cash position and may lead to a material change in its overall financial position,” the business, best-known for its cakes, warned.

A spokesman declined to say who had notified the company of the irregularities, or whether it had contacted Britain’s Serious Fraud Office. Marsh did not immediately respond to a request for comment via social media platform LinkedIn.

A spokesman for Grant Thornton, Patisserie Holdings’ auditor, declined to comment, citing client confidentiality.

In a separate statement a few hours later, the company said it had learned that Britain’s HM Revenue & Customs (HMRC) had on Sept. 14 filed a winding up petition against its main trading subsidiary, Stonebeach Limited, over 1.14 million pounds the tax office says it is owed.

The petition was advertised in the London Gazette, which is one of Britain’s official journals of record, on Oct. 5 with a High Court hearing listed for Oct. 31.

The crisis at Patisserie Holdings, which is led by leisure industry entrepreneur Luke Johnson, comes amid growing scrutiny in Britain of the way companies’ books are checked, with the country’s competition regulator launching a review of the audit sector on Tuesday.

Accountancy firms have been in the spotlight in the wake of a series of high profile British corporate blow-ups, including the collapses of drinks business Conviviality and construction firm Carillion earlier this year, as well as the failure of retailer BHS in 2016.

Johnson, Patisserie Holdings’ executive chairman and biggest shareholder, said the business was “deeply concerned” about the developments.

“We are determined to understand the full details of what has happened and will communicate these to investors and stakeholders as soon as possible,” he said.

Risk Capital Partners, his private equity firm, bought the business in 2006 and floated it eight years later.

Like Johnson, Marsh has been with the company for twelve years, helping to grow it from just eight stores to more than 200 today. Its brands include Philpotts, Baker & Spice and Flour Power City.

Before its shares were suspended, Patisserie Holdings had a market value of about 444 million pounds.

It made pretax profits of 11.1 million pounds on revenues of 60.5 million pounds in the six months to the end of March, when it said it had 28.8 million pounds of net cash.

Marsh, one of two directors at Stonebeach, signed off on the subsidiary’s latest accounts for the year to the end of September 2017, which showed it had about 17 million pounds in cash at the bank and in hand.

Patisserie Holdings said it was in contact with HMRC about addressing the petition against the subsidiary. HMRC declined to comment.

($1 = 0.7579 pounds)

Reporting by Sangameswaran S in Bengaluru; Editing by Keith Weir and Mark Potter