Finance director Chris Marsh was suspended by the company following this and he subsequently resigned.
May’s resignation follows just two weeks after shareholders at the firm backed a rescue deal for the company.
Luke Johnson, the group’s chairman, had injected £20m of his own money, before the company sought shareholder approval for two share placings to raise £15.7m through the issue of 30 million ordinary shares, £10m of which was to be used to pay back Johnson’s emergency loans.
Jason Hollands, managing director at Tilney said: “It is hardly a surprise that the CEO at this firm has fallen on his sword given recent events which have seen the shares suspended, a gaping black hole in its finances and required a rescue rights issue.”
Likewise, Peter Sleep, senior portfolio manager at 7IM, said: “I do not think it is a surprise that the CEO is stepping down after such a large accounting discrepancy.
“The directors of the company, including the CEO, are responsible for the preparation of CAKE’s accounts and should take responsibility.”
Darius McDermott, managing director at Chelsea Financial Services, said when these things happen in companies, CEOs normally leave or get fired, “so no surprise really”.
In an update, the group said it had appointed Stephen Francis as turnaround CEO with immediate effect.
Francis joins with experience having completed four successful operational turnarounds of international businesses with revenues ranging from £200m to £2bn.
Sleep said he has a track record of turning around difficult corporate situations and “his expertise may well be needed”.
Francis was recently CEO of UK’s largest integrated farmer and producer of pork Tulip, where he led the rapid return from significant losses, rebuilt the management team and completed a major growth acquisition.
Prior to that, he led the turnaround of Danwood Group as group CEO, restoring the credibility with stakeholders, re-building the management and transforming the profitability of the company.
He has also held turnaround roles at Vion Food Group and Vita Group, as well as a number of senior roles at Barclays Capital, PricewaterhouseCoopers and McKinsey.
Hollands added: “The business is hanging in there, but it will need decisive action to overcome this blow and regain credibility with investors and so the Stephen Francis, who has been involved with multiple business turnarounds and has a background in finance and management consultancy, has been ushered in as CEO.
“I think was vital for someone new, who was not around when these financial irregularities occurred to come in and take the helm.”
With so much bad news for Patisserie Valerie at the moment, Sleep said it will take a long time to build up investors’ trust and for the firm to establish a creditable track record of profitability.
“CAKE has been stabilised by a cash injection and seems to be operating at the moment,” he said. “Its shares have not restarted trading though.”
Sleep explained that the group will have to thoroughly investigate its financial position and restate its latest results and “maybe restate several years'” financial results in the light of the accounting discrepancies that have been uncovered.
“The new CEO will also have to plan its future business and financial targets. Presumably embedded in these plans will be the hire of a new management team and an upgrade of the CAKE’s financial controls to prevent future discrepancies.
“These will have to be presented to shareholders as soon as possible.”
Additionally, the statement released by the group did not comment on May’s reign at the firm.
Nick Burchett, head of UK equities at Cavendish Asset Management, said: “There is no obligation to congratulate Paul May on his work for the progress so far although it is normally customary.
“The lack of praise speaks a thousand words, and some shareholders could say they were disappointed that the issues was not spotted by either him or the auditors.”
He added that this is a natural next step to ensure no stone is unturned and there are no other “cobwebs” in the closet.
Burchett added: “We remain supportive of plans to re-establish the listing of the company and to stabilise its finances in the short term.
“I have no doubt that Luke will be fully committed to rebuild Patisserie with vigour and to regain market confidence and hopefully the future will be as sweet as one of the delicious cakes it sells.”