A review of contractor insolvency in Hong Kong

Pao Yue-kong Library Electronic Theses Database

A review of contractor insolvency in Hong Kong


Author: Lau, Sin-yan Andrew
Title: A review of contractor insolvency in Hong Kong
Degree: M.Sc.
Year: 1999
Subject: Construction industry -- China -- Hong Kong
Contractors -- China -- Hong Kong
Bankruptcy -- China -- Hong Kong
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Dept. of Building and Real Estate
Pages: vii, 76, [28] leaves : ill. ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1480058
URI: http://theses.lib.polyu.edu.hk/handle/200/981
Abstract: Insolvency in HK construction industry did not contribute significantly to the overall statistic from 1987 to 1996 and was proportion to its share in GDP. However the situation is more alarming as a number of long established main contractors have gone into liquidation recently. To predict accurately the insolvency of a company, subjective index, traditional ratio, Z-model or A-model should not be used alone. Both the financial, social, economic and managerial factors should be taken into account. In particular different countries and different industries need to develop their own Z-models. With the cases being studied, it is found that failed companies exhibited certain characteristics such as lack of working capital & too much reliance on short-term loans as distinguished from healthy companies. It is also observed that the failure of one major project could hinder the cash flow of the whole company. To avoid failure, contractor should pay particular attention to the cash flow situation in order to meet the liquidity requirements of the daily operation of the company. Long unresolved claims and accounts receivable have detriment effects to the financial health of a company. After all it is the management behind the scene who should be responsible for the failure. Employer and consultant should re-assess the risk allocation among client, main contractor & sub-contractor in order to acquire a win-win situation. If the contractor insolvency situation worsen drastically, it may be beneficial to adopt some innovative ideas such as trust fund concept to safeguard the interest of sub-contractors, mitigating the domino effect of contractor insolvency.

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