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SCMP Reporter

In flight it was a model of power and strength. Not so when it crashed. The Peregrine group collapse has earned itself a place in the history books, and not just for the spectacular nature of the group's downfall.

 Those involved in cleaning up the financial mess left behind have entered unchartered waters: they now have to justify their large fees.

 Peregrine was one of the biggest independent investment banks in the region, employing 1,800 staff and generating a pre-tax profit of $1.02 billion in 1996.

    Richard Farrant, formerly with Britain's Financial Services Authority, has been appointed by the financial secretary to examine two of the group's companies, Peregrine Fixed Income and Peregrine Investments Holdings, to find out what went wrong.

 In the meantime, public interest has shifted to the money being spent by liquidators wading through the financial debris. At the very least, the court is aware of the implications to creditors. The fees of the liquidators will be deducted from any money they may get back.

 A court decision to put the scrutiny of the fees charged by provisional liquidators PricewaterhouseCoopers into the hands of an independent expert is a first.

 At this stage, it is also academic. Nobody can be found to do the job.

 There is also the issue of whether a law-costs draftsman would be the appropriate person. Such was the order of Mrs Justice Doreen Le Pichon in November.

 Judging by the reaction of the appeals court yesterday, the consensus seems to be that due to the complex nature of the liquidation a person primarily experienced in scrutinising litigation costs would be out of his depth.

 The task would have to be tackled by someone with relevant experience, for example a retired insolvency practitioner.

 Finding someone is going to be a problem. It is going to cost money. It has never been done before.

 It has also highlighted the lack of relevant guidelines for both the liquidators and the court.

 The Peregrine collapse was the largest insolvency encountered, in global terms, last year. It was also the first time an outside firm had been appointed provisional liquidator from the outset in Hong Kong.

 Recovering the assets involved a team of up to 90 people working flat-out during the initial few months.

 Insolvency practitioners are keen to point out that investors on the other side of the world do not take kindly to phone calls in the middle of the night, hence the hours are unsociable and long.

 The nitty-gritty involved in the work is daunting to articulate never mind explain. For example, if a liquidator pursues one asset, only to have minimal recovery, he has still worked valid hours. Such is the risk-reward ratio.

 'It's a matter of business management and commercial judgment,' PricewaterhouseCoopers partner Chris Barlow said.

 While the liquidators feel it is a valid request of the court for them to justify the fees charged, 'it's a very difficult area', Mr Barlow said.

 The lack of a challenge to the fees charged by PricewaterhouseCoopers left the case's overseeing judge, Mrs Justice Le Pichon, uneasy when presented with a $76 million bill for 63 days' work in June last year.

 The numbers look huge, but so is the job, the liquidators argue. Moreover, the average creditor was not the man on the street - he is a large player with a keen eye for exactly how the money is being spent recovering assets.

 Never underestimate the role of the committee of inspection, practitioners stress.

 One remarked: 'You've never had to sit down and go through your fees with one.'  A proposal circulating the profession suggests setting up a specialist panel of lawyers, accountants and creditors' representatives to scrutinise and adjudicate over controversial fees.

 The fact that proposals are doing the rounds shows an awareness and acceptance that scrutiny of such high-profile liquidations, in terms of costs, is becoming inevitable.

 The details of how exactly this is to be done has to be fleshed out, ideally resulting in guidelines for the insolvency profession, the court and the Official Receiver.



Row over liquidators' fees charts fresh waters