Where asset protection for a principal with Mainland China exposure stands now

A principal who holds assets across the Mainland, Hong Kong, and one or more offshore centres lives at the intersection of three distinct legal regimes. Each regime has its own rules on what a creditor can reach, how a trust is recognised, and whether a foreign structure survives domestic challenge. The question for 2027 is not whether to structure – it is whether the structure actually works when tested.

Asset protection for a principal with Mainland China exposure requires a cross-border analysis that spans Mainland civil law, Hong Kong common law, and the trust and corporate statutes of whichever offshore centre holds the uppermost vehicle. The governing instruments include the Trustee Ordinance (Cap. 29) in Hong Kong, the relevant offshore trust statute, and the Mainland's Civil Code on property, contract, and succession – none of which operate in isolation. Since the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) came into force on 29 January 2024, a Mainland court judgment can, for the first time, be registered and enforced in Hong Kong against assets held there – a development that changes the risk calculus materially.

This analysis examines what is genuinely at stake, where the governing regime bites, how the two systems compare when a structure is challenged, and where our cross-border practice sees the live risk sitting today.

What is actually at stake: the commercial stakes for a cross-border principal

The primary risk is not obscure. A principal with business operations or family assets in the Mainland faces the possibility that a Mainland judgment – whether in a commercial dispute, an insolvency proceeding, or a matrimonial matter – now carries enforceable weight in Hong Kong through a streamlined registration route. Before 29 January 2024, the practical barrier to enforcement in Hong Kong was high. That barrier has been substantially lowered.

The second risk is succession. Mainland law governs the succession of Mainland-situated property. A principal who dies without a valid testamentary instrument that is recognised in the Mainland, and whose estate includes Mainland real property, operating-company equity, or bank deposits, will face a succession process governed by the Mainland's Civil Code. That process does not recognise offshore trusts as the holding vehicle; the trustee's title to Mainland assets is not straightforward.

The third risk is matrimonial. Mainland matrimonial law proceeds on a presumption of joint ownership of assets acquired during the marriage. A foreign trust or offshore holding company does not, by default, rebut that presumption under Mainland law. Our desk sees this issue most frequently when a principal who participated in a family-office restructuring several years earlier faces a matrimonial claim in a Mainland court that takes a different view of what the structure achieved.

These three risks – commercial enforcement, succession, and matrimonial division – define the commercial stakes. They are not independent. A well-advised principal addresses all three in a coordinated structuring exercise, not piecemeal.

How does the Mainland–Hong Kong cross-border interface actually bite?

The cross-border interface operates at two levels: judgment enforcement and structural recognition. Both have changed materially in recent years, and both demand attention from any principal who has been relying on structures that pre-date the current regime.

On enforcement: Cap. 645 replaced the 2008 Choice-of-Court regime (Cap. 597) and removed the old requirement that the parties had agreed to the exclusive jurisdiction of the originating court. The new regime operates on a connection-based test. A Mainland judgment that meets the statutory conditions can be registered with the Court of First Instance in Hong Kong without a fresh merits determination. The registration converts the Mainland judgment into an enforceable Hong Kong judgment. From that point, a judgment creditor can execute against Hong Kong-situated assets – including shares of Hong Kong holding companies, Hong Kong bank accounts, and Hong Kong real property – using the full range of execution mechanisms available in the common-law system.

This matters for principals who hold Mainland operating assets through a Hong Kong intermediate holding company. The Hong Kong holding company and its assets become reachable once a Mainland judgment is registered. A structure that was designed to keep offshore and Hong Kong assets separate from Mainland liability now faces a direct enforcement route from the Mainland into Hong Kong.

On structural recognition: the Mainland's Civil Code does not recognise the common-law trust as a legal concept in the same way that Hong Kong or BVI law does. A trust over Mainland-situated assets is not, in general, effective against Mainland creditors or a Mainland court. This does not mean that a trust is worthless; it means that the trust's protection operates on the assets that are not Mainland-situated – and only if those assets are properly transferred into the trust structure before a claim crystallises.

What foreign counsel frequently misunderstand is the sequencing point. A trust established after a liability has arisen – or after insolvency is foreseeable – is vulnerable to challenge as a transaction defrauding creditors. The Mainland's Civil Code and Hong Kong's common-law rules on fraudulent dispositions both apply, depending on where the relevant assets sat at the time of the transfer.

What does the governing legal architecture look like across the two systems?

The Trustee Ordinance (Cap. 29) in Hong Kong was substantially reformed with effect from 1 December 2013. The reforms are significant for principals with Mainland exposure. Three features are directly relevant.

First, the rule against perpetuities and the rule against excessive accumulations were abolished for Hong Kong-law trusts. A trust governed by Hong Kong law can, in principle, hold assets indefinitely. This matters for family wealth held across generations in a structure where the Mainland nexus of the family may diminish over time.

Second, the 2013 reforms introduced statutory protection for settlor-reserved powers. A trust is not invalidated merely because the settlor retains certain powers over the trust or its assets. This addresses a concern that was, for a period, live in offshore and common-law jurisdictions: that a reserved-power trust could be challenged as a sham on the ground that the settlor never truly parted with control.

Third – and most important for Mainland-exposed principals – the 2013 reforms strengthened Hong Kong's firewall provisions (statutory rules that protect a Hong Kong-law trust against forced-heirship and matrimonial-division claims based on foreign law). Hong Kong law has no forced-heirship regime. A trust properly constituted under Hong Kong law, over assets that are not Mainland-situated, is protected from Mainland forced-heirship claims to the extent that the Hong Kong courts give effect to the firewall.

This is the structural logic that underlies most well-designed cross-border structures for Mainland principals: Mainland operating assets remain in the Mainland; Hong Kong intermediate holding companies hold the offshore chain; and the offshore trust, governed by Hong Kong or BVI law, sits above the Hong Kong layer. The trust's protection is real – but only for the assets that are actually inside the structure and not Mainland-situated.

The Mainland position is materially different. The Civil Code's succession chapter follows a forced-heirship model, with a defined category of compulsory heirs (those who must receive a reserved share of the estate, principally minor children and dependants). Testamentary freedom exists but operates within this constraint for Mainland-situated property. A principal who believes that a Hong Kong or offshore will resolves the Mainland succession question is mistaken. The Mainland succession process for Mainland-situated property will proceed under Mainland law regardless of what a foreign will says.

Where does the comparative read differ – and why does it matter for structuring?

The practical divergence between the two systems sits in four areas: recognition of the trust, treatment of matrimonial assets, enforcement sequencing, and substance requirements for offshore vehicles.

On trust recognition: a BVI or Cayman trust holding shares of a Hong Kong company is, from a Hong Kong common-law perspective, a valid trust structure. The trustees hold legal title; the beneficiaries hold equitable interests. This analysis does not translate into the Mainland civil-law system, which does not recognise the trust/beneficial-interest split in the same terms. A Mainland court examining assets is likely to look through the structure and assess who has effective control and economic benefit – an analysis that resembles substance-over-form review in a tax context but applies to private-law ownership questions.

This creates an asymmetry. The structure protects the principal from Hong Kong and common-law creditors in the way it was designed to. It provides materially less certainty against a Mainland court that proceeds on a different recognition basis.

On matrimonial treatment: the Mainland Civil Code presumes that assets acquired during the marriage are jointly owned by the spouses, subject to certain exceptions. A principal who transferred assets to an offshore trust during the marriage, without the spouse's written agreement, faces the risk that a Mainland court characterises the transfer as a disposal of jointly-owned property. This is a live and recurring issue in our cross-border practice – particularly where the timing of the trust establishment and the timing of matrimonial difficulties overlap.

Hong Kong matrimonial law approaches the question differently. Hong Kong courts consider the full picture of assets, needs, and conduct; they can take into account offshore structures, but they do so through a discretionary jurisdiction that does not apply a rigid joint-ownership presumption. The outcome under Hong Kong matrimonial law may differ substantially from the outcome under Mainland law on the same facts. A principal whose marriage is likely to be adjudicated in the Mainland faces a different risk profile from one whose proceedings will run in Hong Kong.

On enforcement sequencing: since Cap. 645, the enforcement route from a Mainland judgment into Hong Kong assets has become procedurally faster and less uncertain. The old requirement that the parties had contractually agreed to the originating court's exclusive jurisdiction is gone. Registration with the Court of First Instance is the primary step; the defences available to a respondent at the registration stage are limited. A creditor with a favourable Mainland judgment now has a realistic path to Hong Kong enforcement within a commercially meaningful timeframe.

For a principal who holds significant liquid assets in Hong Kong – typically through a bank account held by a Hong Kong holding company – this is a material change. The holding company's shares and the bank account can both be the subject of execution after registration.

On substance: both the BVI and the Cayman Islands have economic-substance regimes in force. A holding vehicle that does nothing – no board meetings of substance, no decision-making in the jurisdiction, no employees, no real management – is at risk of substance challenges under those regimes. For the Mainland-exposed principal, this creates an additional layer: the offshore structure must not only be legally valid, it must satisfy the substance conditions imposed by the offshore jurisdiction's own rules and any CRS (Common Reporting Standard) reporting obligations that flow from Mainland tax residence.

A micro-scenario: the restructuring that arrived too late

A manufacturing group principal – Mainland resident, with operating companies in Jiangsu and a BVI holdco above a Hong Kong intermediate vehicle – came to us in late 2025. The BVI structure had been in place for several years. A commercial dispute with a former joint-venture partner had produced a Mainland judgment against the principal personally. The judgment creditor had filed for registration in Hong Kong under Cap. 645.

The issue was sequencing. The BVI trust that the principal had established earlier in the year had been constituted after the underlying dispute had materially crystallised – arguably after the principal knew or ought to have known that judgment was likely. The question was whether the trust constituted a transaction at an undervalue or a transaction defrauding creditors under the applicable law.

We reviewed the transfer documents, the timing record, and the evidence of the principal's knowledge at each relevant point. The outcome was mixed: some of the assets transferred into the trust had been acquired before the dispute arose and the transfer was properly documented; others were transferred at a point where the principal's knowledge made the transfer vulnerable to challenge. The advice was to engage Hong Kong solicitors on the registration application while preparing the evidentiary record for contesting the fraudulent-disposition argument on the assets where the timing was defensible.

The lesson is not that trusts fail. It is that a trust established in anticipation of a liability, rather than as long-term succession and asset-protection planning, has a structurally different risk profile.

A micro-scenario: the succession gap that a will did not fill

A second matter involved a principal resident in Hong Kong, with Mainland family members as intended beneficiaries, and Mainland real property held in the principal's own name. The principal had a Hong Kong will and a BVI trust covering the offshore and Hong Kong assets. The Mainland property was not inside the trust – it had been acquired late and the transfer had not been completed before the principal's death.

The Mainland property fell outside the trust and outside the Hong Kong will's reach for succession purposes. The Mainland succession process applied to that property. The principal's spouse and children, as Mainland-law compulsory heirs, were entitled to their reserved shares. The offshore trust covered the bulk of the estate efficiently; but the Mainland property – which represented a material portion of family wealth – had to go through a Mainland succession procedure that was neither contemplated nor documented in the principal's planning.

The structural gap – the untransferred Mainland property – was not a legal error. It was a planning gap: the asset was acquired, the transfer was intended, and the event supervened before the transfer was complete. This is the category of risk that a regularly reviewed structure catches and a static one misses.

What foreign advisers and principals get wrong: the most common structural errors

In our cross-border practice, we regularly see three categories of error from principals and their non-Hong Kong advisers.

The first is treating the BVI or Cayman structure as self-sufficient. An offshore holding vehicle is a container; its protection depends on the law applicable to the assets inside it, the law governing the trust above it, and the jurisdictions where creditors can enforce. A BVI company that holds shares of a Hong Kong operating-holding company does not, by itself, protect those shares from a Mainland judgment registered in Hong Kong under Cap. 645. The protection depends on whether the BVI company itself is within a properly constituted trust, and whether that trust was established at a time and in a manner that is defensible against fraudulent-disposition challenge.

The second error is conflating residency with domicile. For Mainland-exposed principals, the question of domicile – the legal concept that governs which law applies to succession of moveable property – is often assumed to follow tax residence. It does not, in all cases and in all systems. A principal who is a Mainland national, resident in Hong Kong for some years, may have a domicile of origin that produces unexpected succession consequences in a Mainland court applying Mainland choice-of-law rules. This is a question that requires specific analysis on the facts; it cannot be assumed away.

The third error is failing to account for the spouse's position. Asset-protection planning that does not address the matrimonial position creates a gap that can be larger than the gap it sought to close. A trust that protects the principal's assets from commercial creditors does not automatically resolve the spouse's claim in a Mainland matrimonial proceeding. Where both spouses are Mainland nationals, the marital-property presumption in the Civil Code applies to the assets that the Mainland court characterises as jointly owned – which may include assets that the principal believed were in the trust.

Where the risk sits now: our read on the current position

The risk for Mainland-exposed principals in 2027 sits in three identifiable places.

The first is enforcement velocity. Cap. 645 has been in force since January 2024, and the registration mechanism is operational. We are now seeing the first cohort of registration applications under the new regime move through the Court of First Instance. The practical question – how long does registration take, and what defences are realistically available – is beginning to be answered by the registry and court process rather than by prediction. Principals with existing structures should assess whether the structure's Hong Kong layer is exposed.

The second is reporting and transparency. The Common Reporting Standard obliges financial institutions in Hong Kong and offshore centres to report account information to the tax authorities of account holders' jurisdictions of tax residence. For a Mainland-tax-resident principal, this means that the existence and balance of offshore and Hong Kong accounts is, in principle, visible to Mainland tax authorities. A structure that was designed on the assumption of opacity operates in a different environment today.

The third is the evolving Mainland position on offshore structures. Mainland regulatory and enforcement authorities have, over recent years, demonstrated a willingness to examine the substance of offshore structures in the context of anti-corruption proceedings, tax enforcement, and asset recovery. A structure that was adequate against commercial creditors may face a different standard when a Mainland authority with broader investigative powers applies a different analytical lens.

None of these observations is a counsel of despair. The common-law trust, governed by Hong Kong or BVI law, over assets that are not Mainland-situated, and constituted at a time when no liability was foreseeable, remains a well-tested vehicle for cross-border asset protection and succession planning. The point is that the structure must be designed for the current environment, not the environment that existed when it was first established.

For a principal who has not reviewed their structure since Cap. 645 came into force, or since the CRS reporting obligations reached their current operational state, that review is overdue.

The sequence described above touches directly on issues addressed in our private wealth practice, where we regularly act on cross-border structures for principals with Greater China and offshore exposure. For the specific interaction of trust law and offshore holding structures in the BVI context, see our analysis on private trusts and family assets in BVI structures. For succession planning where a Hong Kong and a Cyprus element both feature, see our briefing on succession planning across Hong Kong and Cyprus.

The sequence above describes the standard analytical framework. Your matter turns on the specific documents, the jurisdictions actually engaged, the timing of each transfer, and the order in which the steps were taken – which is where the structure stands or falls.

For a structured assessment of your cross-border asset-protection position across Hong Kong, the Mainland, and the relevant offshore centre, write to us at info@lockhartyip.com.

What if the structure has already been challenged or produced an adverse result?

A structure that has been challenged – whether in a Mainland enforcement proceeding, a Hong Kong registration application under Cap. 645, or a matrimonial proceeding in either jurisdiction – is not necessarily lost. The analysis changes, but options remain.

The relevant questions at that stage are: which assets are actually inside the trust or the offshore structure, and which are exposed? Was the trust constituted at a time and in a manner that withstands fraudulent-disposition scrutiny? Has the registration of a Mainland judgment in Hong Kong been actively contested, or allowed to proceed undefended? Are there assets in a jurisdiction that is not subject to the enforcement route being pursued?

In contested matters of this kind, we review the existing structure and documentation, identify the assets and their current legal position, advise on the available defences to enforcement or recognition, and coordinate with locally licensed Hong Kong firms on the court procedure. Where the matter involves Mainland proceedings running in parallel with Hong Kong steps, the sequence of the two sets of proceedings matters; acting in one jurisdiction without accounting for the other creates risk.

If an earlier filing, structure, or enforcement attempt has produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. Write to us at info@lockhartyip.com to discuss the position.

Decision matrix: situation, instrument, route, timing, and risk

The following matrix maps the principal situations our desk encounters to the relevant instruments and the associated risk profile.

Situation A: a Mainland-resident principal holds offshore and Hong Kong assets through a BVI trust and a Hong Kong intermediate company; no current liability or dispute. Instrument: the Trustee Ordinance (Cap. 29) and the applicable BVI trust statute. Route: maintain the structure with regular review; ensure substance in the offshore layer; verify CRS reporting position. Timing: ongoing, with a formal review at each material change in the family's circumstances. Risk: low, provided the structure is current and properly administered.

Situation B: the same principal now faces a Mainland commercial judgment, and the judgment creditor has filed for registration under Cap. 645. Instrument: Cap. 645; the Court of First Instance's registration procedure. Route: assess the defences available at the registration stage; review whether the assets held by the Hong Kong company are within the trust's protection or exposed. Timing: the registration application has a defined procedural timetable; early engagement is required. Risk: material, depending on whether the trust was constituted before the liability arose and whether the Hong Kong assets are inside the protected layer.

Situation C: a Mainland-resident principal is contemplating a matrimonial separation; significant assets are held in a BVI trust established several years ago. Instrument: the Civil Code's matrimonial-property provisions (Mainland proceedings) or Hong Kong matrimonial law (if proceedings run in Hong Kong). Route: assess which jurisdiction's matrimonial law applies; review the timing and documentation of the trust establishment relative to the marriage and the acquisition of the assets. Timing: pre-proceedings review is materially more effective than post-proceedings review. Risk: jurisdiction-dependent; Mainland proceedings on jointly-acquired assets carry a materially different risk profile from Hong Kong proceedings over the same assets.

Situation D: a principal has Mainland real property that has not been transferred into the trust, and is reviewing succession arrangements. Instrument: the Mainland's Civil Code (succession chapter); the Trustee Ordinance (Cap. 29) for the Hong Kong-law trust. Route: accept that Mainland property will be subject to Mainland succession; document the Mainland testamentary position clearly; ensure the offshore and Hong Kong layers are properly constituted and up to date. Timing: this is a planning exercise with no hard deadline other than the principal's life; but a change in Mainland property law, tax law, or the principal's health creates urgency. Risk: gap risk – the untransferred Mainland property will fall outside the trust's succession mechanism.

Self-assessment: questions for a principal reviewing their position now

The following questions identify the areas where a current structure is most likely to carry unreviewed risk.

• When was the trust or offshore structure last formally reviewed, and was that review conducted by counsel with cross-border Mainland and Hong Kong expertise?
• Were all intended assets actually transferred into the trust, or are there assets that were acquired after the trust was established and have not been formally added?
• Was the trust constituted at a time when no material Mainland liability or dispute was foreseeable? Is there documentation to support that position?
• Does the offshore vehicle – BVI, Cayman, or other – meet the economic-substance requirements of its home jurisdiction?
• Has the principal's tax residency changed since the structure was established? If so, has the CRS reporting position been reviewed?
• Is there Mainland real property held in the principal's own name, outside the trust structure?
• Has the matrimonial position been reviewed, including whether any assets transferred to the trust were acquired during the marriage and whether the spouse's agreement was documented?
• Has the principal reviewed what happens under Cap. 645 if a Mainland counterparty obtains judgment and files for registration in Hong Kong?

A "no" or "unsure" answer to any of these questions identifies an area for further review. The review need not be complex; for a well-constituted structure, it is typically a documentation and sequencing exercise. For a structure with material gaps, it may require restructuring steps.

Related practices

• Private Wealth – succession, trust structures, and asset protection across Greater China and offshore centres
• Holding Structures – cross-border holding vehicle design for Hong Kong and offshore principals

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Related

• Private Wealth
• Private Trust Family Assets Bvi Bvi Analysis
• Succession Planning Across Hong Kong Cyprus Cyprus Briefing

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.