Bravo Luke Johnson. He has put his money, or should one say cake, where his mouth is and maybe saved himself a small fortune.
Johnson has mounted a last minute rescue of Patisserie Valerie, the cake shop company, which was on the brink of meltdown with the potential loss of 2,000 jobs.
The serial entrepreneur and major shareholder in Patisserie Holdings, the mother company of the cake shops, has offered up to £20m in loans to save the struggling chain. He has offered £10m in a three-year loan to Patisserie to provide “immediate liquidity” and a further bridging loan facility of up to £10m.
Johnson’s loan offer has staved off imminent collapse as the company had only hours to go before being placed into administration. The chain of 206 cafes is now looking to raise another £15m by issuing new shares although that may be difficult until is more is known about the extent of the group’s troubles.
The cake chain is fighting for survival after Johnson revealed on Wednesday the board had uncovered “significant, and potentially fraudulent, accounting irregularities” which led to the shares being suspended at 429p (meaning the group was worth £446m a week ago.)
It was one of the quickest meltdowns in corporate history, on a par with the dramatic collapse of Conviviality which crashed within days from being worth £500m.
The Patisserie Valerie finance director, Chris Marsh, has been arrested and is now on bail, following allegations of a potential multimillion-pound accounting black hole. At the same time Patisserie Holdings faces a winding up petition over £1.14m in unpaid taxes to HMRC.
How could such a meltdown happen at such extraordinary speed? It’s too early to know all the details leading up to the collapse but word is that the accounting problems came to light after the board discovered that the HMRC had lodged a tax bill against the company some weeks ago – but supposedly the board had not been informed.
The usually garrulous Johnson is being tip lipped about events, saying only that “the board has now reached the conclusion that there is a material shortfall between the reported financial status and the current financial status of the business.” He added that: “Without an immediate injection of capital, the directors are of the view that that is no scope for the business to continue trading in its current form.”
So what do we know? The 44-year-old finance chief, Marsh who was arrested in St Albans on Thursday, has been working at Patisserie since 2006. He was brought in by Johnson after he bought the six cake shops from the Scalzo Brothers for £8m.
A chartered accountant and tax adviser, Marsh had worked with Paul May, Patisserie’s chief executive, since 1998 in other companies. He has also had experience at two AIM-listed companies.
The team grew the chain of Patisserie Valerie shops – the first was opened in Soho district in 1926 by a Belgian woman, Madame Valerie – at indecent speed.
Patisserie Holdings – which includes Druckers, Philpotts, Baker & Spice and Flour Power City – was listed on the stock market in 2014 when its shares were floated at 170p a share. The most recent accounts showed cash reserves in May of £28m, and the last accounts audited by Grant Thornton were for the year to September 2017.
Since 2015, there have been many share sales by directors, and a couple of particularly chunky sales this summer by the deputy chairman among others.
The Serious Fraud Office is on the case, and so too is the Financial Reporting Council, the accountancy watchdog. As well as investigating the potential fraud and the accounting blackhole, they will be looking closely at the work of accountants Grant Thornton and advisers Canaccord.
This is not a good time for the UK’s accountancy profession after so many high-profile spectacular corporate collapses from BHS to Carillion.
What we do know is that the near collapse of Patisserie will be of acute embarrassment and huge cost to Johnson, who owns 37% of the business and on paper has lost around £160m. And he is now stumping up more offering cheap loans.
As well as being a serial entrepreneur and multi-millionaire, Johnson is also considered something of a sage, dispensing business wisdom in books as well as his weekly columns on entrepreneurship and risk-taking in the Sunday Times. The former chairman of Channel 4, who switched from studying medicine at Oxford to running his own businesses after experimenting with nightclubs, is also chairman of the Centre for Entrepreneurs.
Asked a few years ago what advice he would give wannabe entrepreneurs, Johnson said: “I would advise any young person thinking of starting their own business to take the plunge. Life is not a rehearsal, don’t be the person who spends his life thinking, ‘I wish I had done that’.”
You wonder if he feels the same today, and what on earth he will write in this Sunday’s column. That you can’t have your cake, and eat it perhaps?
