The liquidators of Patisserie Valerie are suing Grant Thornton for £200m over alleged negligence in its audits of the café chain that collapsed following a suspected significant accounting fraud.
The lawsuit is set to be one of the largest brought against a mid-tier accounting firm in the London courts and would be a serious blow to Grant Thornton, the UK’s sixth-largest accountant. The firm audited Patisserie Valerie for 12 years but failed to spot an alleged manipulation of its books.
Grant Thornton’s audits of Patisserie Valerie over the three years before the collapse are also under investigation by regulators at the Financial Reporting Council.
“The liquidators . . . have been advised that Grant Thornton were negligent in the preparation and conduct of the 2014 to 2017 financial statements,” said FRP Advisory, which is liquidating the bakery chain, in a report to creditors. It said it had engaged lawyers at Mishcon de Reya to sue the audit group for damages of about £200m.
FRP said “large accounting misstatements” resulted in Patisserie Valerie’s board “being unaware that the group has insufficient funds to continue to trade”.
Grant Thornton said: “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.
“As the matter is subject to an ongoing FRC investigation and civil claim, we are unable to comment further.”
The large claim is the most recent against an accounting firm for alleged negligence following years of scrutiny of the quality of auditing in Britain. In May, the liquidators of outsourcing group Carillion signalled they would begin a £250m lawsuit against Big Four auditor KPMG. No such claim has yet been filed at court.
Grant Thornton was successfully sued for £22m by its former client AssetCo after it failed to expose a fraud at the listed fire engine leasing company.
Patisserie Valerie was put into administration in January 2019 after the discovery of “significant and potentially fraudulent accounting irregularities”, which revealed the business had overstated its financial position by £94m. Cheques worth millions of pounds and thousands of false entries in its ledgers had allegedly been used to artificially inflate its financial position, while hidden bank accounts had run up overdrafts of as much as £10m.
The collapse wiped out hundreds of millions of pounds of shareholders’ investments. Its largest creditor, Luke Johnson, the former executive chairman of Patisserie Valerie, is owed more than £10m.
The Serious Fraud Office has been investigating the scandal for about two years and has so far arrested six people who were released pending investigation without being charged.