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The Government announced today (March 26) the publication of the Report on the investigation into the collapse of Peregrine Fixed Income Limited and Peregrine Investments Holdings Limited prepared by Mr. Richard Farrant, the Inspector appointed by the Financial Secretary in April 1999 under section 143(1)(a) of the Companies Ordinance (Chapter 32).

In the report, the Inspector concludes that the Asian financial crisis, which the directors could not reasonably have anticipated, was the proximate cause of the failure of Peregrine; but that the major underlying cause was inadequate infrastructure of good reporting and accounting procedures, risk management and internal audit.

He said that underlying these deficiencies were management issues and a culture which emphasized business generation over the provision of essential infrastructure.

The Inspector makes no findings of fraud or dishonesty by any of Peregrine's directors, managers or advisers, but holds the view that all failures detected were failures of performance rather than intention. He is critical of the performance of six parties connected to the companies and concludes that it is appropriate for the Financial Secretary or the Official Receiver to consider, on grounds of public interest, making an application for disqualification against four of the former directors of the companies.

"The Financial Secretary and the Official Receiver are considering the Inspector's conclusion in relation to disqualification proceedings," a Government spokesman said.

The Inspector has drawn lessons from the findings of the investigation and made some recommendations for the financial institutions and their advisers, and for the regulation of the financial sector in order to minimize the likelihood of similar recurrence.

"The Government places a lot of importance in enhancing corporate governance in Hong Kong. Various measures to enhance corporate governance were outlined in the Financial Secretary's Budget Speech earlier this month, including amendments to the Companies Ordinance to strengthen the accountability of directors and enable shareholders to monitor and participate directly in corporate affairs; an overall review of the Listing Rules and enforcement procedures to strengthen their corporate governance provisions and improve the efficiency of enforcement; and an overall review by the Standing Committee on Company Law Reform of directors' duties and responsibilities, shareholders' rights and the disclosure of corporate information.

"The Inspector's recommendations are broadly in line with our on-going efforts to raise corporate governance standards.

"We are considering the Inspector's recommendations in detail in conjunction with the regulators and bodies concerned," the spokesman said.

The main purpose of the investigation was to look into the reasons and events leading to the collapse of the above companies, which went into liquidation in January 1998, and to make recommendations on the lessons to be drawn and improvements in Hong Kong's regulatory and supervisory arrangements to minimize the likelihood of a recurrence.

The Inspector completed the investigation and submitted a report to the Financial Secretary in February 2000. Under section 146(3)(b) of the Companies Ordinance, the Financial Secretary may cause the report or any part thereof to be printed and published.

Copies of the Report are available at the Government Publications Centre at Ground Floor, Lower Block, Queensway Government Offices, 66 Queensway, Hong Kong. Members of the public may also have access to the main Report on the Financial Services Bureau's website at www.info.gov.hk/fsb.

End/Monday, March 26, 2001

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