Where a corporate restructuring across Hong Kong and the CIS stands now

A group with operating assets spread across Kazakhstan, Russia, Ukraine or Uzbekistan – and a holding layer in Hong Kong or offshore – faces a structural problem that has sharpened considerably over recent years. The question is no longer whether to restructure. For most principals in our cross-border practice, the question is where the risk actually sits today, and which sequencing still works.

A corporate restructuring across Hong Kong and the Commonwealth of Independent States (CIS, the loose association of post-Soviet states including Kazakhstan, Russia, Ukraine, Uzbekistan and Belarus, among others) typically requires alignment across at least three legal systems: the Hong Kong Companies Ordinance (Cap. 622) governing the holding layer, the civil-law corporate statutes of the relevant CIS jurisdiction governing the operating entity, and an agreed governing-law and forum clause that will actually function when the structure is tested. The practical difficulty is that each of those three systems pulls in a different direction on enforceability, consent requirements and asset-protection logic.

This analysis sets out what is commercially at stake, where the cross-border interface bites hardest, and our current read on where risk concentrates for groups at this junction. We address the governing-instrument question, the comparative position across the two systems, and the day-two operating reality that determines whether the structure holds.

What is actually at stake commercially for a group spanning Hong Kong and the CIS?

The core commercial stake is not legal tidiness. It is the ability to move capital, enforce decisions and exit on terms that the structure can actually deliver. A holding entity in Hong Kong or in a BVI or Cayman vehicle above a CIS operating company looks clean on an organogram. It becomes complicated the moment a shareholder dispute, a refinancing, or an exit negotiation begins in earnest.

In our cross-border practice, we see two recurring pressure points. First, the disconnect between the rights that a Hong Kong holding structure appears to confer – shareholder rights, dividend upstreaming, loan repayment routes – and the rights that CIS corporate law actually allows the operating entity to implement. CIS jurisdictions typically impose restrictions on profit distribution, mandatory reserve requirements, currency-control approval for cross-border payments, and minority-shareholder consent thresholds that have no equivalent in a common-law holding structure. Second, the gap between what a shareholders' agreement governed by Hong Kong law or English law promises and what a local court in Almaty, Moscow or Tashkent will enforce.

That second gap is the more dangerous one. A shareholder agreement governing a Kazakh tovarishchestvo s ogranichennoy otvetstvennostyu (LLP, the standard Kazakhstani operating vehicle, roughly analogous to a limited liability company) is governed by the law chosen by the parties at the holding level. But the corporate governance of that entity – board composition, transfer restrictions, deadlock resolution, the directors' duties – is governed by Kazakhstani law regardless of what the shareholders' agreement says. The same logic applies in Russia, Uzbekistan and most other CIS states. The lex societatis (the law of the place of incorporation, which governs the internal affairs of a company) follows the operating entity, not the holding structure above it.

Understanding that gap is the starting point. What follows from it is the question of which instruments can bridge it, and which cannot.

How does the cross-border legal interface actually bite at the holding level?

The Hong Kong holding vehicle – whether a Hong Kong company incorporated under the Companies Ordinance (Cap. 622) or an offshore BVI or Cayman entity – operates under a common-law system. English is the working language of Hong Kong's courts. The Court of First Instance applies a body of corporate and commercial law that a London or Singapore practitioner recognises immediately. That familiarity is one reason Hong Kong remains a structuring hub for groups with CIS operating assets.

The bite comes when rights at the holding level need to be exercised through the operating entity. A shareholders' agreement governed by Hong Kong or English law does not automatically give the holding vehicle a mechanism to enforce its terms against the CIS entity or its local directors. The holding vehicle's remedies run against the other shareholders at the holding level. If the local directors of the operating entity act in a way that breaches the shareholders' agreement but is technically permissible under local corporate law, the holding vehicle has a claim in contract but may have no direct enforcement tool against the operating entity itself.

This is not a theoretical problem. We have seen it arise in restructurings where a Kazakhstani or Uzbekistani operating entity's local directors, acting under instruction from a rival shareholder bloc, took decisions that were valid under local law but directly contrary to the agreed governance structure. The holding vehicle's remedy was a claim in arbitration or litigation – but by the time that claim resolved, the commercial damage was done.

What bridges that gap, at least partially, is a combination of a well-drafted pledge over the shares of the local entity granted in favour of the holding vehicle, a parallel loan structure with cross-default provisions, and a local notarial instrument (in civil-law jurisdictions, notarisation of the shareholders' agreement or a local-form charter amendment can give the agreed governance terms some domestic effect). None of those instruments is a substitute for proper legal advice in the relevant CIS jurisdiction. But taken together, they reduce the gap between what the structure promises and what it can deliver.

The Significant Controllers Register requirement in Hong Kong – in force since 1 March 2018 under the Companies Ordinance – adds a disclosure layer that many CIS-origin principals find unfamiliar. Every Hong Kong-incorporated entity must maintain an SCR identifying ultimate beneficial owners above the relevant threshold. For restructurings that involve CIS-origin capital, that disclosure requirement needs to be mapped at the outset against the beneficial ownership position across the entire structure, not just the Hong Kong vehicle.

What does the comparative read tell us about governing law and forum?

The choice-of-law and forum question is where most restructurings across Hong Kong and the CIS are either won or lost at the design stage. Getting it right requires understanding both what Hong Kong law and Hong Kong courts offer, and what a CIS court or a CIS-seated arbitration body is likely to do with the same facts.

Hong Kong law offers a mature, commercially sophisticated legal environment. The courts are independent, English-language capable, and produce reasoned judgments that are recognisable to common-law practitioners globally. Hong Kong-seated arbitration under the Arbitration Ordinance (Cap. 609), modelled on the UNCITRAL Model Law, gives parties access to the HKIAC – one of the leading arbitral institutions in the Asia-Pacific region. Emergency-relief proceedings before an emergency arbitrator are ordinarily completed within 14 days of file transmission under the HKIAC Administered Arbitration Rules (2024 Rules, effective 1 June 2024). That speed matters when a shareholders' dispute is live and assets are at risk.

For groups with CIS counterparties, the critical question is what a Hong Kong or HKIAC arbitration award is worth in the jurisdiction where the operating assets sit. Russia, Kazakhstan, Ukraine, Uzbekistan and most other CIS states are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. On paper, a Hong Kong-seated award is enforceable in those jurisdictions through the Convention. In practice, enforcement against a state-linked entity or in a politically charged dispute can be slow, contested and uncertain. Courts in several CIS jurisdictions have applied the public-policy exception to resist recognition in circumstances where a common-law court would not have done so.

That asymmetry has a practical consequence. A group relying solely on Hong Kong arbitration as its enforcement route for CIS operating assets is carrying more risk than the clause on paper suggests. The better-structured approach – and the one we regularly advise on – layers the enforcement position: a Hong Kong-seated arbitration with a well-drafted clause, combined with asset protection at the holding level (pledges, account structures, loan documentation) that does not depend on getting an award recognised in the CIS jurisdiction.

The governing-law position in CIS jurisdictions is also more constrained than many foreign principals assume. Several CIS states limit or condition the parties' ability to choose a foreign governing law for contracts that are predominantly performed locally. Kazakhstan and Russia, for example, maintain rules under their civil codes that can override a foreign-governing-law choice for certain categories of agreement. A shareholders' agreement that is entirely effective under Hong Kong or English law may be treated as partially subordinate to local mandatory provisions when it reaches a local court. That does not mean foreign governing law should be abandoned. It means the structure needs to account for local mandatory rules at the drafting stage, not at the enforcement stage.

Where does the risk sit now, and what has changed?

The risk profile for Hong Kong / CIS restructurings has shifted over recent years for reasons that are both legal and geopolitical. We address each separately.

On the legal side, the most significant structural development affecting Hong Kong as a holding location has been the evolution of the foreign-sourced income exemption (FSIE) regime, in force from 1 January 2023. A Hong Kong holding vehicle receiving dividends, interest, royalties or disposal gains from a CIS operating entity now needs to satisfy economic-substance conditions to access the exemption from Hong Kong profits tax. Passive income that previously passed through a Hong Kong holding structure without triggering a Hong Kong tax event may now do so if the substance requirements are not met. For restructurings currently on the design table, the substance question at the Hong Kong holding level is not optional.

The Pillar Two minimum top-up tax – effective for fiscal years beginning on or after 1 January 2025 for in-scope groups with consolidated revenue at or above EUR 750 million – adds a further layer for larger international groups. A CIS group restructuring through Hong Kong that falls within scope needs to model the Pillar Two position at the outset. The interaction between Hong Kong's territorial tax system and the top-up mechanics under the global minimum tax requires careful analysis; the assumptions that supported earlier holding structures may not hold post-2025.

On the geopolitical side, the position affecting Russia specifically is materially different from the position in other CIS states. The sanctions environment – and Hong Kong's position as a jurisdiction that implements United Nations sanctions and does not give domestic effect to unilateral measures of other states – creates a compliance analysis that must be conducted before any structure involving Russian assets or counterparties is finalised. Hong Kong counsel on this desk approach that analysis strictly as a compliance and risk exercise, and the structuring work follows from the compliance position, not the other way around.

For CIS jurisdictions outside the current UN-sanctions perimeter – Kazakhstan, Uzbekistan, Azerbaijan, Armenia, Georgia and others – the restructuring environment is more straightforward in the legal sense, though still operationally demanding. Kazakhstan, in particular, has seen significant inbound structuring activity as groups with regional operating assets look for a stable, commercially oriented CIS base. The Astana International Financial Centre (AIFC, a financial and commercial hub in Kazakhstan's capital operating under English common-law principles, with its own court and arbitration centre) offers an alternative forum that some groups now use in parallel with or instead of Hong Kong arbitration for purely Central Asian disputes. Understanding that alternative – and whether it is genuinely substitutable for Hong Kong in a given structure – is a question our desk addresses regularly.

What does the day-two operating reality look like, and what does foreign counsel typically miss?

Day two – the period after the structure is in place and the operating entity is running – is where most of the structural problems in Hong Kong / CIS restructurings actually surface. The design phase tends to focus on the holding architecture and the governing-law clause. The operating phase reveals the gaps.

What does foreign counsel – meaning counsel who understands the Hong Kong holding layer but has limited exposure to the CIS operating jurisdiction – typically miss? In our experience, three things recur.

First, currency-control compliance. Most CIS states maintain currency-control regimes that require regulatory approval for cross-border capital movements above defined thresholds. Kazakhstan's currency-control rules, Russia's historically extensive requirements, and analogous regimes in Uzbekistan and Belarus mean that an upstream payment from the operating entity to the holding vehicle – whether characterised as a dividend, a loan repayment, a management fee or a royalty – may require advance regulatory clearance, documentation and sometimes registration. A structure that assumes free upstreaming of funds is a structure that has not been stress-tested against local currency-control rules.

Second, the director-liability position in civil-law systems. Common-law jurisdictions concentrate director liability on a relatively defined set of duties to the company. CIS civil-law systems – following the civil-code tradition – often impose broader and less predictable liability on directors of local entities, including personal liability for tax obligations and, in some cases, joint and several liability for the entity's debts in circumstances of effective insolvency. An individual appointed to serve as local director of a CIS operating entity on behalf of a Hong Kong holding group needs to understand that personal-liability exposure before accepting the appointment.

Third, the treatment of intra-group transactions under local tax rules. Transfer-pricing rules across CIS jurisdictions have developed significantly, and intra-group service fees, royalties and loan interest paid by a CIS operating entity to a related Hong Kong or offshore entity are increasingly subject to documentation requirements, benchmarking analysis and, where local tax authorities challenge the pricing, disallowance. A restructuring that creates new intra-group flows needs to model the transfer-pricing position in the CIS jurisdiction, not just the Hong Kong tax position.

A mid-market manufacturing group with a BVI holding vehicle above a Kazakhstani operating entity came to our desk in the latter part of 2026. The group had a shareholders' agreement governed by English law, a Hong Kong-seated arbitration clause, and an upstream loan structure. The problem: the local currency-control approval for interest payments had not been obtained when the loan was advanced, making the interest payments technically unlawful under Kazakhstani currency-control rules, which in turn created a risk that the loan principal would be reclassified under local law. We worked through the local compliance position, coordinated with allied counsel admitted in Kazakhstan, and restructured the payment terms to allow regularisation. The matter resolved within one operating cycle, but the cost – financial and management-time – was substantially higher than it would have been had the currency-control analysis been done at the design stage.

The sequence matters. A restructuring across Hong Kong and the CIS is not complete when the holding structure is set up. It is complete when the operating entity can actually function within the structure, and the flows – capital, dividends, interest, fees – can move in the way the structure assumes.

How should the governing-law and forum clause be designed for a CIS-connected structure?

The governing-law and forum clause in a shareholders' agreement or holding-level transaction document for a Hong Kong / CIS structure deserves a dedicated analysis, because the default drafting that works in a purely common-law environment does not always transfer cleanly.

Start with what Hong Kong law offers as governing law. Hong Kong law is a well-developed common-law system. Courts and tribunals in many jurisdictions will respect a Hong Kong-law choice made by sophisticated commercial parties. The Companies Ordinance (Cap. 622) and the body of Hong Kong contract and equity law provide a stable, predictable framework for shareholders' agreements, share purchase agreements and intercompany arrangements. For a holding-level agreement governing a Hong Kong-incorporated vehicle, Hong Kong law is the natural choice and carries minimal risk of being overridden.

The more difficult question is what governing law to choose for instruments that directly affect the CIS operating entity – the shareholders' agreement or charter of the local entity, the pledge over local shares, the local management agreement. In most CIS jurisdictions, a foreign governing-law choice for the charter of a local entity is simply not available: the charter is a local-law document. For the shareholders' agreement at the operating-entity level, parties can sometimes choose a foreign governing law, but local mandatory rules will overlay that choice on specific issues (directors' duties, distribution rights, minority protections). The safest design choice is to use a foreign governing law (Hong Kong or English) for the holding-level agreement, and to ensure that the local-entity shareholders' agreement or charter amendment is drafted by counsel admitted in the relevant CIS jurisdiction and is consistent with local mandatory requirements.

On forum, the position is similar. Hong Kong-seated arbitration under the Arbitration Ordinance works well for disputes that can be resolved at the holding level, where the award is against another shareholder or a party to the holding-level agreement. For disputes that require relief directly against the CIS operating entity or its directors, the parties need an enforcement strategy that reaches into the CIS jurisdiction. That means either combining the Hong Kong arbitration clause with a parallel security package, or considering whether an AIFC or another regionally recognised arbitral institution clause would give better enforcement prospects for specifically Central Asian disputes.

What the clause should not do – and what we regularly see in structures that come to us for remediation – is purport to submit the CIS operating entity itself to Hong Kong or HKIAC jurisdiction without a clear local-law basis for that submission. A submission clause in a holding-level shareholders' agreement does not bind the operating entity to arbitrate in Hong Kong unless the operating entity has separately and validly agreed to that submission. Getting that step right at the design stage prevents a category of enforcement problem that is extremely difficult to fix after the dispute has started.

What is our current read on where this is heading, and what should groups do now?

The direction of travel for Hong Kong / CIS corporate structuring is towards greater scrutiny, greater substance requirements, and – in specific CIS jurisdictions – greater legal unpredictability. That does not mean the structure is unworkable. It means the design standards have risen.

On substance, the FSIE regime and the Pillar Two mechanics together mean that a Hong Kong holding vehicle needs genuine management and decision-making at the Hong Kong level. A letterbox vehicle above a CIS operating entity – maintained by a corporate-services provider with no real management engagement – will not meet the substance conditions that the current Hong Kong tax regime requires, and may expose the group to a profits tax charge on passive income that the earlier structure was designed to avoid. Groups that put their structures in place before the FSIE reform should review those structures against the current requirements.

On enforceability, our view is that the single most underappreciated risk in Hong Kong / CIS restructurings is the gap between the holding-level governance agreement and the operating-entity governance reality. A shareholders' agreement can be the best-drafted instrument in the world; if the CIS operating entity's local directors do not comply with it, and if the structure has not created a direct enforcement mechanism that reaches the operating entity, the practical outcome may be years of arbitration or litigation while the commercial position deteriorates. The security package – pledges over local shares, account-control structures, intercompany loan cross-defaults – is not a detail. It is part of the governance architecture.

On the geopolitical dimension, we advise groups to treat the sanctions compliance analysis as a threshold condition, not an afterthought. Any restructuring that touches Russian-origin capital, Russian entities or Russian individuals needs a careful, documented compliance analysis before the structure is designed. Hong Kong's position – implementing UN sanctions, not unilateral measures – is a clear starting point, but the relevant facts (ownership chains, counterparty exposure, payment flows) need to be mapped against that starting point in a documented file.

For groups restructuring through other CIS jurisdictions, the current environment is operationally demanding but legally manageable. Kazakhstan and Uzbekistan in particular remain viable operating and holding locations for regional groups, and the legal infrastructure for cross-border structuring through those jurisdictions – combined with a Hong Kong holding layer – continues to develop. The work is technical, multi-jurisdictional and sequential. That is precisely where a cross-border counsel desk that holds the full picture across Hong Kong, the offshore centres and the CIS operating jurisdictions adds the most value.

The sequence above describes the standard analytical position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the structure is tested or the enforcement route is won or lost.

To discuss how the current position in your Hong Kong / CIS structure should be assessed, contact us at info@lockhartyip.com.

Related practices

• Corporate Counsel – cross-border corporate governance, restructuring and ongoing counsel for international groups
• Holding Structures – design and review of Hong Kong and offshore holding vehicles above CIS and Asian operating assets
• Tax Positions – FSIE regime, Pillar Two and territorial tax analysis for groups restructuring through Hong Kong

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