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Enoch Yiu

A court case has thrust the financial practices of Hong Kong’s international schools into the spotlight, prompting fresh scrutiny of how they raise funds with debentures and capital levies.
On Wednesday, the US-based Lutheran Church-Missouri Synod (LCMS), which co-founded the Hong Kong International School (HKIS), said it would sue the school’s operator for allegedly breaching an operational agreement, accusing the institution of serving only the “rich and privileged few” and amassing excessive financial reserves that amounted to HK$2.8 billion (US$359 million).
The school’s operator, Hong Kong International School Association Limited (HKISAL), on Thursday rejected the allegations, claiming they were “false or irrelevant”, adding that the school was committed to supporting the international business community.
The legal challenge questioned the adequacy of safeguards for parents making significant upfront investments to buy debentures as part of the cost of their children’s education. Depending on the terms, parents can receive refunds when their children leave the school, but some are non-refundable, according to a lawyer.


“The lawsuit implicitly fuels calls for regulatory evolution, as the LCMS’s proposed alternative school without debentures spotlights how these fees can clash with accessibility goals,” said Tom Chan Pak-lam, a lawyer and veteran stockbroker.
“In my view, a review is overdue to close these loopholes,” he said, adding that potential reforms could include a requirement for schools to have automatic refunds to parents in case of insolvency, reporting of reserves to the public and consumer protections like cooling-off periods.
“These wouldn’t stifle schools’ ability to fund growth, but would align the system with Hong Kong’s pro-business ethos while treating parents as informed investors, not just donors,” Chan said.
Some parents said they supported more regulation and disclosure. Cecilia Chan, whose two sons studied at an international school a decade ago, had to buy debentures at HK$250,000 each after admission. She could get some money back by selling the debentures to other parents when her sons finished their studies.
“Overall, the debentures are pretty expensive,” she said. “It would be better to have more protection measures for the parents.”
In August 2023, Hong Kong’s Education Bureau introduced a guideline on school debentures, capital levies and other fees. It included more disclosures about investments and redemptions, while school operators were required to confirm that the debentures complied with a Securities and Futures Commission (SFC) ordinance.
But a lawyer said schools and charity organisations were usually exempt from SFC regulations. The SFC declined to comment.
However, some education experts said it was necessary for schools to issue debentures to raise funds and believed current regulations were sufficient to protect parents.
“In Hong Kong, the government grants land for private international schools, but the schools themselves must finance the construction of their premises,” said Carlson Tong Ka-shing, the former chairman of the English Schools Foundation (ESF). “This is why many institutions resort to raising funds by issuing debentures.”
The ESF is the largest English-language international school organisation in Hong Kong, comprising 22 institutions with around 18,000 students from 75 different nations.
Tong declined to comment on the HKIS dispute, but said existing regulations provided sufficient safeguards.
“The guidelines specify that issuers must be transparent regarding the use of funds, including details on redemption, trading and potential refunds,” he said.
During his tenure as ESF chairman from 2011 to 2015, Tong oversaw the issuance of debentures to fund the renovations of ageing school facilities.
“It is vital for our school operators to have efficient means of raising funds to support the next generation of the workforce,” Tong said.
He added that renovations were necessary because the ESF schools had no government backing for rebuilding.
“If we were to increase tuition fees, the process would be too lengthy; thus, issuing debentures became the most viable solution,” Tong said. “At the time, some ESF schools were over 50 years old. For instance, the roof tiles at Island School were falling off.”


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Business

Court case prompts fresh scrutiny of how Hong Kong’s international schools raise funds with debentures and capital levies


Court case prompts fresh scrutiny of how Hong Kong’s international schools raise funds with debentures and capital levies.


Hong Kong international schools’ debentures and capital levies: how do they work?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Court case prompts fresh scrutiny of how Hong Kong’s international schools raise funds with debentures and capital levies

Court case prompts fresh scrutiny of how Hong Kong’s international schools raise funds with debentures and capital levies