12 June 2020

Approval needed for debentures charged by Hong Kong’s international schools from 2020/21 academic year

This article was written by Neil Carabine and Ike Kutlaca.

In January, the Office of the Ombudsman, Hong Kong released a report on the Education Bureau’s (EDB) procedures for approving school fees and debentures.

In this article, we examine the latest statements from the Secretary of Education about debentures, capital levies and other non-tuition fees.

Do debentures need EDB approval?

As parents well know, debentures for Hong Kong international schools can cost several million dollars.

Historically, the EDB has considered debentures (and other non-tuition fees, like capital levies, nomination rights and construction charges) as private financial arrangements between parents and schools, and on this basis, has not reviewed the appropriateness of these charges.

Legislative framework

When applying for registration of a new school, the operator must seek EDB approval for their inclusive fees (see regulation 60A of the Education Regulations (Cap. 279A) (the ER)).

For already-registered schools, any changes to the inclusive fee are subject to the EDB’s approval (see regulation 65 of the ER).

“Inclusive fee” means the “total sum of money charged in respect of the education of a pupil in a school” (see section 3 of the Education Ordinance (Cap. 279) (the EO)).

Regulation 61(1) of the ER additionally provides that:

…no management authority, manager or teacher shall charge or accept payment of any money or any fees whatsoever other than the inclusive fees as printed on the [certificate of inclusive fees], provided that additional charges, money or fees (including entrance examination fees and pupil registration and withdrawal fees) may be charged if previously approved by the Permanent Secretary in writing and if such approval is kept exhibited together with the certificate [of inclusive fees].

The EDB’s historical position, therefore, doesn’t fit with the provisions of EO and the ER which clearly state that all fees – from the smallest library fee to the largest debenture – can only be charged by a school if approved by the EDB.

The Ombudsman’s report

In January 2020 the Ombudsman released a report into the EDB’s mechanisms for approving charges imposed by private schools, available here.

In that report, the Ombudsman criticised the EDB for taking a “liberal approach” in its interpretation of the EO and ER, and concluded that all fees charged by a school need EDB approval in line with regulation 61(1) of the ER.

In the course of the Ombudsman’s investigation, the EDB sought legal advice and conceded that all amounts charged by a school (refundable or otherwise) in connection with education should be subject to the EDB’s approval.

In response to the Ombudsman’s report, the EDB said in January 2020:

We will take into account the Ombudsman's recommendations and review and improve our existing regulatory mechanism with a view to formulating as soon as possible a more comprehensive mechanism for approving the collection of other charges by private schools, and setting up a relevant database.

Recent developments

Since the release of the Ombudsman’s report, the EDB has been focusing on measures related to COVID-19, and we have seen little progress concerning debentures or other non-tuition fees.

This changed on 5 June 2020, when Mr Kevin Yeung JP, the Secretary for Education, addressed a meeting of the Panel on Education of the Legislative Council of Hong Kong.

In response to queries from legislators, Mr Yeung announced that:

  • as schools have introduced different types of non-tuition fees, it is necessary for the EDB to implement a system regulating those fees;
  • the EDB will be speaking to schools to better understand non-tuition fees currently being charged, and the reasonableness and purpose of those charges;
  • for the 2020/21 academic year, all private schools will be required to submit applications to the EDB before charging debentures or other non-tuition fees;
  • the EDB will ask schools to make a “one off” application for approval of such fees; and
  • the EDB is still developing a unified system for assessing and approving the payment of non-tuition fees.

What does this mean for private schools in Hong Kong?

Unfortunately, the EDB is yet to release any guidance on how it will assess non-tuition fees (or the mechanism of making an application for approval), nor on the treatment of non-tuition fees that have already been collected by schools.

As we said in our COVID-19 update on Hong Kong private education in April, schools are currently facing a challenging environment – which is only made more complex by the uncertainty surrounding how the EDB will assess non-tuition fees.

If the EDB’s new approach results in rigorous examination of debentures and other non-tuition fees, schools should be prepared for the EDB to reject the collection of some non-tuition fees.

Schools that are relying on charging large debentures, capital levies or other non-tuition fees should start reassessing their financial forecasts now – in case their non-tuition fee income will be significantly reduced.

The Secretary of Education’s comments indicate that the EDB is eager to understand more about debentures and other non-tuition fees imposed by Hong Kong private schools – and this reflects the EDB’s comments in the Ombudsman’s report.

Schools should be prepared to assist the EDB in understanding the justification for non-tuition fees charged to date, and to assist in developing the EDB’s assessment criteria.

That said, it may be some time before these criteria are finalised.  We expect the EDB’s focus to remain on COVID-19-related matters for the short term – in the same meeting, the Panel on Education approved a proposal to the Finance Committee of LegCo for HKD 1.44bn of interest-free loans to four private schools.

While the EDB is yet to release any guidance for how non-tuition fees will be assessed in the 2020/21 academic year, we expect that non-tuition fees will be assessed on a similar basis to annual requests for tuition fee increases – so the EDB’s “Points to Note on Fee Revision Application of Private Schools” (available here) may be helpful.

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