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Katherine Peavy

In Due Time: China’s business environment makes the case for due diligence

The South China Morning Post headline jumped out at me: Steel Princessstrading company in liquidation. I leaned a little closer to my neighbor on Hong Kong’s Star Ferry to read over his shoulder. The article claimed that liquidators were looking for about US$500 million that the company should have had in the bank. “Yes!”I mentally fist-pumped. Some people might view a missing half-a-billion as a failure, for me the headline meant success. I had investigated the CEO of Pioneer Iron and Steel, dubbed the “Steel Princess”by the press, on behalf of a client.

Fortunately, occasions when front-page headlines support the analysis in a due diligence report remain rare. On this occasion, the bankruptcy of Pioneer Iron and Steel leading to transfers of company assets from the trading company to other entities owned by the Pioneer Metals Group fulfilled the worst-case risk scenario in a due diligence report I’d given to a client a few years before. The largest risk, depending on what business the client planned to do with Pioneer, was that the corporate structure allowed for undocumented asset transfers. I never expected to see the exact risk we’d documented on the front page of a newspaper.

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