Security is never as of right. This is depressingly true in the Hong Kong construction industry where insolvency is on the rise. By illustrating with recent case examples, this article reviews the salient machinery of security commonly installed in Hong Kong construction contracts when insolvency occurs. It goes on to outline a checklist for procedural options available to parties in those situations when such security must be invoked.

Insolvency is on the rise in the Hong Kong construction industry. This may be the direct consequence of the economic downturn that Hong Kong has just managed to survive, combined with the traditional way in which the construction industry has been operating. Contractors in the industry ordinarily fund their works by way of overdrafts and trade credits and they are usually paid, if at all, in arrears. Yet, their undertaken activities inherently are subject to a high level of risks. There are definite uncertainties in tender prices which arise from the fact that works are being priced before construction commences and based on technical and financial assumptions. As such, there is a shared belief confirmed by statistics1 that the construction industry is more exposed to the risk of insolvency.