The administrators of Patisserie Valerie have settled a £200mn lawsuit with accountants Grant Thornton that alleged negligence in its audits of the café chain, which collapsed after a suspected fraud.
FRP Advisory, which is liquidating the failed group, sued Grant Thornton in 2020 in one of the biggest High Court claims ever to be brought against a mid-tier accounting firm.
The bakery group was put into administration in January 2019 after discovering potentially fraudulent accounting irregularities that led it to overstate its financial position by £94mn. The failure wiped out hundreds of millions of pounds of shareholders’ investments and sparked a string of legal and regulatory cases. Although some shops found buyers, most were closed and 900 jobs were cut.
In identical statements, the companies said: “The [Patisserie Valerie Group] and Grant Thornton confirm that in 2021 they resolved the claims brought against Grant Thornton by PV Group. The terms are strictly confidential.”
FRP pursued Grant Thornton for £200mn, alleging it was negligent in the preparation and conduct of financial statements between 2014 and 2017. It turned to law firm Mishcon de Reya to bring the claim.
It said “large accounting misstatements” had resulted in Patisserie Valerie’s board “being unaware that the group has insufficient funds to continue to trade”, in a report to creditors last year.
Grant Thornton had audited Patisserie Valerie for 12 years but failed to spot an alleged manipulation of its books.
According to representatives for both companies, the parties resolved the claims last year in a confidential settlement that came to light on Sunday. The news was first reported by the Sunday Telegraph newspaper.
The settlement comes after Grant Thornton was fined more than £2.3mn by the Financial Reporting Council in September for “a serious lack of competence” in its audits of the café chain.
If the auditors had done their job properly they should have “identified clear indicators of the risk of material misstatement [of Patisserie Valerie’s accounts] due to fraud”, the FRP said.
The regulator also imposed a £87,750 fine on David Newstead, who led Grant Thornton’s audit, and banned him from carrying out statutory audits for three years. The fines related to Grant Thornton’s clean audit opinions on Patisserie Valerie’s accounts for the three financial years to 2017.
The Serious Fraud Office has also opened a criminal investigation into Patisserie Valerie’s collapse and made several arrests, including one rearrest. However, no charges have been announced.