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

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), declared it would sue the school’s operator for allegedly breaching an operational agreement, accapplying 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 building significant upfront investments to purchase debentures as part of the cost of their children’s education. Depfinishing 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,” declared Tom Chan Pak-lam, a lawyer and veteran stockbroker.

“In my view, a review is overdue to close these loopholes,” he declared, 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.

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