Who’s in Charge?

Hong Kong has strict licensing laws for any money lenders who are not already regulated by other banking or securities regimes ^[1].

Because of the “zero tolerance” approach of the legislation, when loans are claimed by an unlicensed money lender, it is a typical defence by a borrower that either the lender failed to obtain a licence or else that the safe harbour used by the lender does not apply. In both cases, the borrower’s defence is with the goal that the loan should be set aside as required by law for failure to comply with Hong Kong’s licensing laws ^[2].

In a recent appeal case of an unlicensed money lender seeking recovery of its loan ^[3], the defence arguments centred around attacking one of the safe harbours to the licensing regime. This exempts “a loan made to a company secured by a … charge … registered under the Companies Ordinance” from being subject to a money lender’s licence.

Although both the original decision and the appeal found little explanation for the origin of this exemption, the apparent reason is that registered charges are typically part of more formal and transparent financing arrangements, especially as the charges are subject to public inspection at the Companies Registry.

In the current case, the lender – who was an unlicensed entity – had lent monies to a borrower company. The loan was secured by a third-party corporate guarantee and a charge over properties owned by the guarantor’s parent companies.

In the original hearing ^[4], the judge decided that this exemption from licensing only applied where the lender and the security provider were the same entity, and so the loan arrangements were set aside. To come within this safe harbour, the Court said, the loan had to be made to a borrower, which then secured its obligations itself by registering the charge against its own assets.

Effectively, the Court found that the exemption only applied to a loan made to a company which is “secured by that company by a … charge… registered under the Companies Ordinance” ^[5].

However, the Hong Kong Court of Appeal disagreed. They noted that the wording of the exemption was very clear and, to use the Court’s words, “there is no place to graft into it a further requirement that the mortgage is confined to a mortgage of the borrower’s own assets.” ^[6]

In other words, absent clear legislative intent to the contrary – which did not exist – a plain reading approach was needed and the safe harbour was available where a registered charge secured the loan, even if this was granted by a third party.

The Court of Appeal judgment does appear to provide a common sense interpretive approach, especially to discourage “back against the wall” tactics in debt recovery cases, where a desperate borrower will readily cling to any possible form of defence.

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Chris Lambert

For more information or advice on banking and finance matters, please contact:-
Chris Lambert | | + 852 2861 8417

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

^[1] Money Lenders Ordinance (Cap. 163) (“MLO”) which was initially introduced more than half a century ago to target loan sharks operating in the territory.
^[2] Section 23, MLO.
^[3] In the Hong Kong Court of Appeal, Yeung So Lai v. Art Excel Ltd [2025] HKCA 957.
^[4] In the Hong Kong Court of First Instance, GG v. LL Ltd [2024] HKCFI 2302.
^[5] Author’s emphasis added.
^[6] Yeung So Lai v. Art Excel Ltd [2025] HKCA 957, para 44.