Liquidators to Patisserie Valerie have launched a £200 million legal claim against Grant Thornton, auditor of the cake chain that collapsed amid a suspected fraud.
FRP Advisory is seeking the damages from Britain’s sixth biggest audit firm, alleging it was “negligent in the preparation and conduct of the 2014 to 2017 financial statements”.
The liquidators are being advised by law firm Mishcon de Reya.
Grant Thornton audited Patisserie Valerie’s accounts for 12 years until the chain collapsed into administration in January 2019 following the emergence of an accounting scandal.
The claim is the latest setback for Grant Thornton, which last year lost a lengthy battle to overturn a judgment for failings in its auditing of AssetCo, a fire-engine leasing company. The accounting industry has come under intense scrutiny from regulators, creditors and politicians over the quality of audits following a series of high-profile collapses.
The Serious Fraud Office is investigating the “business and accounting practices of individuals” associated with Patisserie Valerie and six people are known to have been arrested, including one re-arrest. The Financial Reporting Council is also investigating the audit by Grant Thornton.
Grant Thornton said yesterday: “We will rigorously defend the claim. Patisserie Valerie is a case that involves sustained and collusive fraud, including widespread deception of the auditors. The claim ignores the board’s and management’s own failings.”
Patisserie Valerie was founded in 1926 and was acquired in 2006 by Luke Johnson, the entrepreneur and former chairman of Channel 4 and Pizza Express. The chain had 206 outlets and more than 3,000 employees and floated in 2014 on Aim, the London Stock Exchange’s junior market, where it was valued at almost £450 million at one point. Part of Patisserie Valerie was sold by administrators to Causeway Capital, an Irish firm, in February 2019.
Mr Johnson, 58, was executive chairman and is a creditor. Any damages secured from Grant Thornton will be used to return funds to creditors.
He used his column in The Sunday Times in 2019 to criticise the role of Grant Thornton. “One of the most astonishing aspects of the entire episode is the way in which it seems such an eminent firm had the wool pulled very comprehensively over its eyes. They never raised any material issues about the quality of our accounts,” he wrote.
In a parliamentary hearing with Grant Thornton in 2019, Rachel Reeves, who chaired the business select committee, expressed surprise that the alleged fraud had not been spotted by the firm. “In a shop that sells teas and cakes you’d think that sort of thing [fraud] might be spotted,” she said.
FRP Advisory, in its report to creditors, said that Patisserie Valerie collapsed because “large accounting misstatements” resulted in the management board “being unaware that the group had insufficient funds to continue to trade”. It said its “substantial investigations” had included meetings and interviews with key staff and directors and records from numerous third parties.
The firm was appointed in 2019 after KPMG, the administrator, said it would not be able to bring a claim against Grant Thornton because of a conflict of interest — Grant Thornton audits its accounts. KPMG found the hole in Patisserie Valerie’s accounts was £94 million, more than twice the estimates.
FRP declined to comment yesterday.
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