KPMG ditched as administrators of Patisserie Valerie

Creditors of café chain Patisserie Valerie have dropped KPMG as administrators after conflicts of interest arose relating to Grant Thornton, the auditor for both businesses

Four months after KMPG first flagged the issue, and called for the appointment of dual administrators, the creditors’ committee of PV Holdings Realisations Limited have served notice on the KPMG contract and has announced it will move the Patisserie Holdings’ administration to business and restructuring firm FRP Advisory.

Members of the creditors committee include former chairman of the failed cake and café chain, Luke Johnson, as well as representatives from HMRC, one of the main creditors.

KPMG joint administrators will remain in post for a short period as there are a number of immediate actions relating to the administration, which need to be completed before the final handover.

‘The creditors committee of PV Holdings Realisations Limited has voted to appoint Paul Allen and Geoff Rowley, partners at FRP Advisory LLP, as liquidators of the company.

‘The liquidators will now work with the administrators KPMG to ensure an orderly hand over before conducting their investigation.’

An HMRC spokesperson told Accountancy Daily: ‘Given this is ongoing and about a taxpayer, we’re unable to comment on specifics.’

KPMG’s David Costley-Wood and Will Wright were appointed joint administrators of PV Holdings Realisations Limited (formerly Patisserie Valerie Holdings Limited) – in Administration (the Company) on 13 February 2019.

KPMG lost the business over conflicts of interest as Grant Thornton was also the Big Four firm’s auditor, which meant it was untenable for the firm to action critical legal proceedings against the mid-tier audit firm.

This conflict issue had been flagged by KPMG joint administrators in March, when they suggested that it would be prudent for a creditor’s committee to be formed and for it to appoint additional administrators, who then would be able to review and establish legal claims against parties, including Grant Thornton.

The KPMG joint administrators’ report dated 18 March 2019, stated: ‘In light of the apparent accounting misstatements that occurred in the period prior to the administration appointment, a number of regulators are investigating the Company’s affairs in that period.

‘It will be necessary for the Company to consider whether there may be sufficient grounds to establish potential legal claims against a number of parties. These parties may include Grant Thornton, who were the auditors to the Patisserie Valerie Group.

‘Grant Thornton are also auditors to KPMG, and given that the Joint Administrators are partners in KPMG, it would not be appropriate for the Joint Administrators to consider whether the Company has a potential legal claim against Grant Thornton. We are therefore proposing the appointment of an additional administrator, who will have the responsibility to review all potential legal claims.’

Patisserie Valerie went bust after a £40m accounting fraud was discovered at the firm, involving false invoices. At the time of their collapse Grant Thornton was the auditor and was paid £76,000 in audit fees for year end 2016.

Last October, KPMG was hired to conduct a forensic investigation after the company collapsed and found evidence of ‘devastating’ fraud and deliberate manipulation of the accounts.

‘The work carried out by the company's forensic accountants since then has revealed that the misstatement of its accounts was extensive, involving very significant manipulation of the balance sheet and profit and loss accounts,’ parent company Patisserie Holdings said in a statement at the time.

Former company auditor Grant Thornton was sacked when the fraud was discovered and is under investigation by the Financial Reporting Council (FRC), which is investigating the mid-tier firm’s audit of the financial statements of Patisserie Holdings for the years ended 30 September 2015, 2016 and 2017 under its audit enforcement procedure.

The regulator is also conducting an investigation under the accountancy scheme into Patisserie Valerie’s former chief financial officer (CFO), Chris Marsh, over the preparation and approval of Patisserie Holdings plc’s financial statements and other financial information provided by Marsh.

Patisserie Valerie went into administration in January amid claims about missing invoices and a £40m accounting fraud which came to light last October. At the time administrators at KPMG immediately closed 70 stores and concessions before it secured a sale into private equity.

Irish private equity firm Causeway Capital Partners part-rescued the company in February and acquired 96 stores. At the time all members of staff across the Patisserie Valerie and Philpotts chains were transferred to the purchaser with immediate effect. The Dublin-based fund currently owns some cafes within its portfolio, including BB Bakers & Baristas, which controls 65 stores in the UK and Ireland.

Sara White | 26-July-2019

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