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Enoch Yiu

The collapse of Peregrine Holdings highlights the importance of extending the investigative powers of the Securities and Futures Commission, according to Alexa Lam, the commission's new executive director.

Ms Lam said the Securities and Futures Bill, now before the Legislative Council, would go part of the way to addressing the SFC's claim it has insufficient power to properly investigate alleged fraud in listed companies.

The bill seeks to give the SFC access to auditors' working papers on a company under investigation,  its bank records and information from trading partners.

'This is exactly what has been recommended by the inspector of the Peregrine case,' Ms Lam said.

Richard Farrant, appointed by the Government to look into the reasons behind the collapse of Peregrine, recommended in his report released on Monday a widening of the SFC's powers.

Mr Farrant said the SFC was restricted in its investigations, after Peregrine went into provisional liquidation in January 1998, by a law that restricted it to obtaining information only from the listed company being investigated.

The law prevented it from obtaining information from third parties, such as Peregrine's trading partners.

In his report, Mr Farrant said: 'This limitation is unwise. In my view, the power [of the SFC] should be extended to unrelated third parties.'

The limitations led the SFC to end its investigation of Peregrine and hand the matter over to the financial secretary, who appointed Mr Farrant in 1999 to conduct a full investigation.

Existing law affords more investigative power to a government-appointed inspector than to the SFC.

Ms Lam said the bill before Legco recognised the importance of the SFC being able 'to carry out its duty to crack down on malpractices of listed companies and to enhance investor protection'.

In his report, Mr Farrant also urged a closer link between the SFC and the Hong Kong Monetary Authority to monitor financial corporations, such as Peregrine, which offer a range of financial services.

Mr Farrant's report had shown Peregrine collapsed due to mismanagement, which illustrated a serious corporate governance problem in Hong Kong, Mrs Lam said.

She said the Standing Committee on Company Law Reform had set up working groups to review directors' responsibilities, shareholder rights and the disclosure of corporate information. A proposal is due by the end of the year.

A government spokesman said the Peregrine inspector's recommendations were broadly in line with government's ongoing efforts to raise corporate governance standards.

The Government planned to propose legislative amendments to provide for a corporate rescue procedure which would give a six-month grace period in which creditors could not petition to wind up a company.

Mr Farrant suggested Hong Kong introduce a law to allow companies such as Peregrine to have more time for debt restructuring before being liquidated.



Newly appointed SFC boss emphasises need for increased investigative role