Subcontractor faces 90% business loss and unemployment as Fung Cheung Kee’s liquidation leaves 3 construction sites incomplete with HK$60m owed

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3rd March 2024 – (Hong Kong) The longstanding contractor Fung Cheung Kee, established 44 years ago by the Fung family, abruptly declared bankruptcy on Friday. The sudden collapse of the company, has led to the immediate dismissal of all its employees and the commencement of liquidation proceedings.

The Hong Kong Construction Industry Employees General Union has been inundated with pleas for help from distressed workers and reports of numerous subcontractors being left with unpaid debts. Among the affected is Mr. Chan, a second-tier contractor who has disclosed that the collapse has left him owed in excess of 60 million Hong Kong dollars. The outstanding payments are related to at least ten construction sites, three of which are incomplete. Mr. Chan expressed hope that he might negotiate with the property owners to finish the projects, thereby preserving jobs and his company’s reputation.

The sense of betrayal is palpable as Mr. Chan recounts his shock and disappointment. Only a month prior to the collapse, Fung Cheung Kee had hosted their annual dinner, which seemed to signal business as usual. Mr. Chan had anticipated that the company would gradually settle its debts throughout the year, making the sudden liquidation announcement all the more jarring.

Mr. Chan’s long-standing relationship with Fung Cheung Kee spans 30 years, a partnership that began with his father. Despite noticing signs of financial strain, such as salary delays and unreimbursed employee expenses, Mr. Chan had faith in the contractor, partly due to Fung Cheung Kee’s public assurances of having significant receivables and partly because of the owner’s prominent position as a former vice-chairman of a real estate construction association.

The debt-ridden projects include notable sites such as 21 Sheung Yuet Road in Kowloon Bay, 2 Tak Hing Street in Jordan, 206-212 Johnston Road in Wan Chai, and The Met. Azure in Tsing Yi, most of which have been completed and occupied. Particularly, the Met. Azure project alone accounts for 12 to 13 million Hong Kong dollars of the outstanding debt.

Now, with over 90% of his company’s business previously coming from Fung Cheung Kee, Mr. Chan faces the harsh reality of unemployment. The contractor is set to join a creditors’ meeting at the end of the month and will begin the arduous process of filing claims. However, the prospects of recovering the full amount are grim, with repayment priorities favouring employees and banks over subcontractors like himself.

The collapse has left many employees and management of Fung Cheung Kee also struggling with unpaid salaries. Mr. Chan’s attempts to reach the owner have been futile; the company’s management appears to be just as in the dark as the rest of the workforce. Many, including the CEO who has been with the company for 30 years, are facing the same predicament.

Mr. Chan explained that the staggering amount of 60 million Hong Kong dollars owed was accumulated over the past five to six years, including both the construction costs and the retention money released after project completion. Previously, Mr. Chan would submit monthly payroll sheets to Fung Cheung Kee, which would make payments each month but always short of the full amount. “I saw that they (Fung Cheung Kee) always had construction sites operating and they were paying, albeit not fully,” he said. Therefore, he would simply remind them to “hurry up and settle the full amount,” never anticipating that the shortfall would accumulate to 60 million dollars.

He also mentioned that about a year and a half ago, several settled projects required additional payments totallng about 18 million dollars. The boss of Fung Cheung Kee issued several checks to him but then asked to defer depositing them in favour of paying for other project expenses. Operating as a subcontractor, Mr. Chan stated that he did not have much bargaining power over how main contractors managed payments and admitted that sometimes there was not even a formal contract in place between main and subcontract contractors, which he now realises complicates matters when payments are due.

In November 2023, the Development Bureau submitted a draft of the “Security of Payment Legislation for the Construction Industry” to the Legislative Council to improve payment practices in the construction industry and introduce a mechanism for the swift resolution of payment disputes, thus improving the cash flow issues of all stakeholders in the construction industry supply chain.

The draft ordinance covers all construction works, related services, and materials, as well as machinery supply contracts procured by the government, designated statutory, and public bodies or companies. It specifies monetary thresholds for primary contracts at no less than 5 million dollars and for others at 500,000 dollars. The draft also addresses certain unfair payment terms and suggests the introduction of an arbitration mechanism.

Mr. Chan pointed out that main contractors often abruptly call upon subcontractors to commence work, such as after winning a bid, and may not even have a signed contract with the client immediately. It could take several months after work has begun for main contractors to formalise contracts with developers and then deal with subcontractor agreements. “During these few months, my own expenses might accumulate to over ten million dollars,” he confessed. Although he believes that the ordinance won’t solve all problems, he thinks that it will not significantly improve the industry’s payment issues in the short term.

He hoped that project owners or developers would supervise main contractors to ensure timely payment to subcontractors, which would provide more protection. Finally, he added that his company completed the Kwun Tong Freedom Space project contracted by Fung Cheung Kee for the Urban Renewal Authority, yet “has not received a single dollar” and hopes that the Urban Renewal Authority will take initiative to pay the overdue construction fees, encouraging other private developers or owners to follow suit.