There was no crime, no malice, just an unprecedented chain of events. So reads the epitaph of Peregrine, Asia's high-flying investment bank that spectacularly went to the wall during the regional financial crisis. Peregrine was an ambitious operation striving to become a significant player with limited resources. A savage downturn in mid-1997 was, however, to reveal structural weaknesses at the group: a yawning gap between its appetite for risk and control systems in place to keep the bank in check. Six years down the line, and a government probe and criminal investigation later, a core question is still being asked. Given underlying flaws in Peregrine's credit controls and management shortcomings outlined in the 2001 government-commissioned probe into the group's demise, had its directors in some way allowed the collapse to happen? Two of Peregrine's former board members, chairman Philip Tose and finance director Peter Wong Wing-cheong, now face being stripped of directorships at the High Court for their conduct leading up to the company's downfall. Unlike many directors who are banished from the boardroom, the pair did not steal any money. They did not accept bribes, massage the accounts, inflate the company's earnings or burn the books. They were simply inept, asserts the Official Receiver's Office. For the first time in Hong Kong, a director is to be judged solely on ability. 'It's a question of incompetence here,' explains Official Receiver Eammon O'Connell, although he declined to speak directly about the case. A judgment is pending from the High Court as to whether the pair should be disqualified for terms agreed between the parties and the Official Receiver. Mr Tose expected a ban of three years, while Mr Wong had agreed to four. The companies judge has, however, expressed concern over the length of the terms, and should she reject their proposal, the case may go to a full trial. It would provide Hong Kong's first legal benchmark of corporate proficiency. 'Usually, it's [a ban] where there's some kind of criminality involved,' Mr O'Connell said. Most applications for disqualification orders are based on a director's failure to keep proper books or a misappropriation of assets before or after a company goes bust. Each year, scores of directors are disqualified by the courts. This year, 20 orders banning executives from boardrooms were granted, the minimum ban running for two years and the maximum eight years. The maximum ever levied has been just over 11 years, short of the 15 years allowed by law. But while Hong Kong may be poised to break new ground by broaching the more abstract side to disqualifications, Britain is familiar with legal tests of competence in banning its directors. The most high-profile case was Barings, which collapsed in 1995 after Nick Leeson accrued losses of GBP830 million (HK$11.6 billion) on unauthorised trading in derivatives. He spent five years in jail and 10 directors were disqualified for allowing his trades to happen. Among the executives was Andrew Tuckey, Barings' deputy chairman who was banned for four years after a judge criticised him for a 'fundamental misconception as to the extent of his management responsibility'. Similarly, Mr Tose came under fire in an inspector's report commissioned by the government for failing to appreciate the company's shortcomings in risk management and 'attain the standard of competence required of him'. 'His failure to ensure that risk management controls over fixed income business were in place and operating properly was at the heart of the most serious aspect of mismanagement of Peregrine,' the 2001 report said. The chairman may have been highly ambitious, but he was oblivious to the risks involved. During a High Court hearing on the directorship ban last week, it was stressed by counsel for the Official Receiver, Godfrey Lam, that the failures being criticised were all the more stark given Peregrine's size and the risky nature of investment banking. 'These were not risks that were in any way hidden,' he said. It was perhaps the size of Peregrine and the veracity of its demise that played large in the government decision to take such unprecedented disqualification steps against the company's directors. Peregrine's collapse became quite a political issue, a test of Hong Kong's response to corporate adversity on such a spectacular scale. The likelihood of this triggering a rash of similar actions against less high-profile companies, however, seems remote. Most cases involve relatively small capitalised firms, and large-scale insolvencies such as Peregrine are the exception. Funding is another factor. 'One of the issues is just resources,' explains Clifford Chance litigation partner Martin Rogers. 'There isn't the time and resources during liquidations to pursue to the bitter end exactly what misconduct has occurred,' he says. Litigation costs can also be a discouraging factor: the second stage is to prosecute the matter. As Mr Rogers notes: 'People exercise their right to defend themselves quite vigorously in Hong Kong.'