On Wednesday morning, the company suspended its shares – and its chief financial officer Chris Marsh – while it investigated “significant, and potentially fraudulent, accounting irregularities”.
Executive chairman and renowned entrepreneur Luke Johnson said he was “deeply concerned” about the situation as he parachuted in a specialist team from Big Four accountant PwC to look deeper into its books.
A few hours later and things got even worse when Patisserie revealed it had been hit with a winding up order from the UK tax office, which claims it is owed more than £1mln in unpaid taxes.
By this time, the crack team of accountants were deep into the company’s books and the crisis deepened on Thursday when their initial findings were published.
Patisserie warned it would need an “immediate injection of capital” if it was to avoid going under given the “material shortfall” between what it said its financial position was, and what it actually is.
In its interim report back in May, the company had a net cash surplus of £28.8mln, so questions will be asked where that has gone.
The saga is a pie in the face for AIM, which has been working to rid itself of its ‘casino’ reputation.
Patisserie Valerie was one of the junior market’s highest-profile constituents that, along with the likes of ASOS plc (LON:ASC), Boohoo PLC (LON:BOO) and Fevertree Drinks PLC (LON:FEVR), had boosted AIM’s credibility of late.
Investors have been caught out too, even some of the big ones such as Aberdeen Standard Investments which called it an “entirely unforeseen situation”.
Events seem to have taken short sellers – those who profit from a stock’s fall and generally spot troubles before others – by surprise too, with shorttracker.co.uk showing that no funds were betting against the firm.
Everybody caught out
It wasn’t just the market in the dark though, management seemed to be completely unaware too.
In the first statement on Wednesday, the company said it only became aware of the black hole in its accounts the day before, while bosses also claimed they only found out about the unpaid tax bill until shortly before issuing the second press release.
That in itself will raise questions of the board, particularly Luke Johnson, the executive chairman and majority shareholder.
Fingers will also be pointed at Patisserie’s auditors, Grant Thornton, which gave it a clean bill of health only this summer.
In fairness to them, it is not yet clear whether it was Grant Thornton that highlighted the issues as part of its audit of the full-year numbers, which are due to be published next month.
In truth, little is likely to be known before the full findings of the investigation are released, and even those close to the company aren’t entirely sure of the exact details of what’s going on.
Once thing is for sure though, investors are likely to require something a little stronger than a pot of tea and a slice of cake to get over this debacle.