Patisserie Valerie’s secret £10m debt

Executives had no idea cafe chain had massive overdrafts at TWO banks

CRISIS-HIT cafe chain Patisserie Valerie was pushed to the brink of collapse when bosses discovered two secret bank overdrafts totalling nearly £10million, it emerged.

The overdrafts were set up with HSBC and Barclays, but the company’s board did not find out about them until six days ago, executive chairman Luke Johnson said.

The board believed they had £28.8million in the bank that they had reported in May. In reality Patisserie Valerie had a £9.7million black hole.

At the same time, the board learned HMRC was chasing them for £1.1million in unpaid bills. The crisis was so serious the company warned it would have to stop trading unless it could raise millions of pounds.

On Friday, Mr Johnson joined other investors and pledged £20million to help save its 2,800 staff and 206 cafes.

He said the business is now stable but described the past week as ‘the most harrowing of his life’. The 56-year-old entre-left preneur told The Sunday Times: ‘Everything was fine. Then I had this bombshell on Tuesday and it all started unravelling.

‘I had no inkling this was going to happen.

‘It was a roller coaster week, but we have found support among a group of institutional investors for a refinancing, and going forwards, we believe there is a profitable, sustainable business. I’ve never had an experience like this in my career and I hope never to repeat it.

‘It’s certainly been the most harrowing week of my life.’

Mr Johnson, a father-of-three, is one of Britain’s best-known businessmen.

He transformed Pizza Express from a firm with just 12 restaurants to one with 250. He bought Patisserie Valerie in 2006 and it was listed on London’s junior stock exchange eight years later. But last week the business was plunged into turmoil when bosses discovered ‘significant, and potentially fraudulent, accounting irregularities’.

Mr Johnson said he was given the bombshell news when he arrived for a meeting in London with Paul May, Patisserie Valerie’s chief executive, on Tuesday morning.

A shocked Mr May also told him the company’s bank accounts had been frozen and that it was feared almost bankrupt.

At the same time, HM Revenue & Customs was seeking to have the company wound up over a £1.1million unpaid bill and the firm was due in court in three weeks’ time. The pair were scrambling to uncover the scale of the black hole and on Friday, finance director Chris Marsh was arrested and released on bail. The Serious Fraud Office has launched an investigation into the affair.

Mr Johnson said: ‘It felt rather surreal. It was as if I was in a nightmare that I’d wake up from.’ He later pledged £20million and the company raised an additional £15.7million by issuing new shares.

Some of the money will go towards paying back about half the cash loaned by Mr Johnson, as well as meeting liabilities such as the tax bill.

Mr Johnson said Patisserie Valerie was now on a more stable footing, adding: ‘At certain points in the week I was thinking: “I can’t carry on with this”, but I don’t feel like that [now].

‘I’m very appreciative, because it’s not without risk, obviously, but I think we will make it work and succeed, and I hope we do well for shareholders.’

However, along with the company’s auditors, Grant Thornton, Mr Johnson is likely to face questions about how he and the directors failed to spot problems with the company’s cash position.