Where a keepwell deed and offshore bond support structure stands now

The offshore bond market built on PRC corporate credit has produced one of the most studied mismatches in cross-border finance: a parent undertaking, governed by Hong Kong or English law and housed in an offshore entity, that is meant to sustain debt-service capacity in a Mainland operating group – yet carries no enforceable payment obligation that a Mainland court will honour without a fight. The instrument at the centre of this structure is the keepwell deed (a parent-company support undertaking, common in PRC offshore bond structures, obliging the parent to maintain the issuer's liquidity and net-worth ratios). For most of the past decade, the deed sat in the disclosure memorandum as a structural comfort rather than a hard credit enhancement. The question now is what it is worth when enforcement is actually required.

A keepwell deed and offshore bond support structure is an arrangement in which a Mainland Chinese parent or affiliate undertakes, under Hong Kong or English law, to maintain sufficient liquidity and net worth in an offshore special-purpose vehicle that issues bonds to international investors, combined with additional structural supports such as equity-interest pledges, deed-of-equity-interest-purchase-and-purchase undertakings, or letters of credit; the enforceability of these instruments across the Mainland–Hong Kong boundary remains the central legal and commercial question, and it is one that the reciprocal-enforcement regime brought into force under the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) on 29 January 2024 has materially, though not completely, reframed.

This analysis examines the commercial architecture, maps the cross-border legal interface, and sets out where the enforcement risk and structural risk sit today. It is written for in-house counsel, treasury teams, and restructuring advisers managing or inheriting positions in these structures.

What is commercially at stake: the debt-service gap

The fundamental problem is a payment gap between the entity that owes money – the offshore issuer, typically a BVI or Cayman Islands special-purpose vehicle – and the entity that generates cash: the Mainland operating group or holding company. Bondholders lend at the offshore level. Cash sits onshore.

The keepwell deed was designed to bridge that gap without triggering PRC foreign-exchange controls and cross-border guarantee approvals that would apply to an outright guarantee by the Mainland parent. Under PRC regulations, an outright cross-border guarantee by a Mainland entity for an offshore debt instrument requires registration with the State Administration of Foreign Exchange (SAFE – the PRC regulator responsible for foreign-exchange transactions). The keepwell structure was designed to avoid that registration requirement. It succeeded in that narrow objective. The trade-off was enforceability.

When default arrives, the bondholder, acting through the trustee, needs to convert a contractual undertaking – maintain ratios, fund the issuer's liquidity shortfall, purchase equity interests – into actual cash recovery. That conversion requires enforcement. And enforcement, in any structure where the operating assets are in the Mainland, ultimately depends on one of three routes: a Hong Kong or English court judgment recognised by the Mainland courts; an arbitral award under the Mainland–Hong Kong arbitral-award enforcement arrangements; or a restructuring plan confirmed by a Mainland court that treats the offshore instrument as an admissible claim.

Understanding which route is available, and in what sequence, is the analytical question this structure demands. The answer has changed since January 2024, but not entirely in favour of creditors.

How does the governing framework work across the two systems?

The governing instruments for this structure span three legal systems. The keepwell deed and any associated deed of equity-interest purchase undertaking (EIPU – an undertaking by the Mainland parent to purchase the issuer's equity interests if specified trigger events occur) are typically governed by Hong Kong law or English law. The bonds themselves are typically issued under English law indentures or Hong Kong law trust deeds. The onshore assets – the equity in Mainland operating companies, the land and plant – are governed by PRC law.

At the contractual level, the keepwell deed creates obligations that a Hong Kong or English court will construe and enforce as a matter of contract. A judgment of the Hong Kong Court of First Instance, once obtained, was historically difficult to register or enforce in the Mainland without re-litigating on the merits, because the pre-2024 regime under the 2008 choice-of-court arrangement (Cap. 597) required an exclusive-jurisdiction clause, and keepwell deeds frequently lacked one or contained non-exclusive submission clauses.

The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance, in force from 29 January 2024, removes the exclusive-jurisdiction requirement and replaces it with a connection-based test. A Hong Kong judgment obtained on or after that date in a matter with a qualifying Mainland connection – including a contractual defendant domiciled or with assets in the Mainland – is registrable in the Mainland courts under the reciprocal mechanism. This matters significantly for keepwell structures: the Mainland parent is typically the counterparty, and it typically has assets in the Mainland.

The connection-based test does not guarantee registration. Defences remain, including public-policy objections and the question whether the Mainland court regards the subject matter as falling within the exclusion categories. Keepwell and EIPU claims are contractual money claims, not insolvency or matrimonial matters. They should fall within scope. But parties should verify the current position before acting, given the novelty of the regime.

What changed on 29 January 2024 – and what did not

The single most important structural change is the removal of the exclusive-jurisdiction prerequisite for Mainland judgment registration. Prior to Cap. 645, a trustee or bondholder obtaining a Hong Kong judgment on a keepwell deed claim against a Mainland parent faced a near-certain finding in the Mainland courts that the Hong Kong judgment could not be registered, because the parties had not validly conferred exclusive jurisdiction on the Hong Kong courts.

Cap. 645 applies to judgments made on or after 29 January 2024. It covers monetary and non-monetary judgments in civil and commercial matters. Keepwell and EIPU claims are civil and commercial. This means that a Hong Kong court judgment obtained in proceedings commenced after that date on a post-inception keepwell deed breach has a viable, tested registration path to the Mainland – one that did not reliably exist before.

What has not changed is the upstream question: whether the keepwell deed creates a cause of action that is strong enough to survive a challenge to its enforceability as a matter of Hong Kong or English law. Courts in Hong Kong have considered whether keepwell deeds create binding payment obligations or merely best-efforts undertakings. The answer turns on the specific drafting. Some keepwell deeds require the promisor to "ensure" liquidity at defined ratios; others require it to "use commercially reasonable efforts". The distinction is material. A best-efforts covenant may not found a money claim at all.

In our cross-border practice, we regularly analyse keepwell deed drafting for distressed-bond investors and restructuring trustees. The range of drafting quality in legacy positions is wide. Earlier-vintage structures issued before the sector matured in sophistication frequently contain covenants that are, on careful reading, aspirational rather than binding in the payment sense. That structural weakness is not cured by the new judgment-registration regime.

The arbitration route: a cleaner enforcement path where it exists

Where the keepwell deed contains a valid arbitration clause with Hong Kong as the seat, the enforcement route bypasses the judgment-recognition complications entirely. Hong Kong is a signatory to the New York Convention – for international enforcement outside the Mainland. For Mainland enforcement, the 1999 Arrangement on Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR, as supplemented in 2020, provides the route.

The 2021 amendment to the Supplemental Arrangement permits simultaneous enforcement applications in the Mainland and Hong Kong – a significant creditor-protection development, allowing a trustee to pursue Hong Kong assets and Mainland assets concurrently rather than sequentially. The interim-measures arrangement, in force since 1 October 2019, further permits a Hong Kong-seated arbitration to seek interim measures – including asset preservation orders – from Mainland courts before the award is rendered.

The practical constraint is that many keepwell deeds and EIPUs specify litigation, not arbitration, as the dispute-resolution mechanism. English courts in London or Hong Kong courts in the Court of First Instance are common choices. Where litigation is specified, the judgment-registration path under Cap. 645 applies. Where arbitration is specified, the arbitral-award route applies. The two regimes do not mix. Counsel who conflate them – particularly foreign counsel unfamiliar with the Mainland–Hong Kong interface – create procedural problems that are difficult to correct later.

The HKIAC Administered Arbitration Rules (2024 Rules, effective 1 June 2024) provide a mature procedural framework for the arbitration route, including emergency-relief procedures ordinarily completed within 14 days of file transmission. For large-scale bond defaults with cross-border asset exposure, early interim measures can be decisive in preserving recovery value ahead of an insolvency filing by the Mainland group.

The comparative read: where the risk actually sits

There is a persistent assumption among some international counsel that the keepwell structure creates something close to a guarantee in practical terms. It does not. The comparative read across the Mainland and offshore systems reveals at least four distinct risk layers.

First, the drafting risk. As noted, the covenant language in a keepwell deed determines whether there is a payment obligation at all. A ratio-maintenance undertaking that is silent on what happens when the Mainland parent lacks the foreign-exchange approval to fund the offshore issuer may be unenforceable as a practical matter even if it is enforceable as a legal matter – because the Mainland parent can point to regulatory constraints as a supervening event. Whether that argument prevails depends on the governing law and the specific language. It is not a theoretical risk.

Second, the SAFE registration risk. The reason the keepwell structure was designed without SAFE registration is that SAFE registration would have brought the obligation within PRC regulatory oversight. Without registration, the Mainland parent's obligation to fund across the border remains subject to the foreign-exchange control environment at the time of any actual funding requirement. When that environment tightens – as it periodically does – the mechanism by which the keepwell functions in practice (Mainland-to-offshore fund transfer) may be constrained by regulation, regardless of what the deed says.

Third, the Mainland insolvency risk. When a Mainland group enters restructuring (the PRC court-supervised debt-reorganisation procedure under PRC enterprise bankruptcy law), the Mainland court administers the Mainland assets. Offshore claims – including keepwell and EIPU claims by foreign bondholders – are creditor claims in those proceedings. Whether the offshore claim is recognised, and at what level of priority, is a matter of PRC law and the restructuring plan approved by the Mainland court. Hong Kong courts and offshore courts have no supervisory jurisdiction over PRC insolvency proceedings.

Fourth, and relatedly, the beneficial-ownership and substance risk. Where a keepwell structure is also used to access treaty benefits – reduced withholding tax on interest payments upstream, for example – the intermediate holding entity through which the structure passes must demonstrate genuine economic substance and beneficial ownership of the income under the relevant treaty. A bare offshore SPV that exists only to issue bonds, with no real substance, is unlikely to sustain a treaty claim on a tax authority challenge. The FSIE regime in Hong Kong, in force from 1 January 2023 as amended, and the Pillar Two minimum top-up tax applicable to in-scope MNE groups for fiscal years beginning on or after 1 January 2025, add further substance-and-tax pressure to structures that were designed before those regimes existed.

What foreign counsel and in-house teams get wrong

The most common analytical error we see is treating the keepwell deed as equivalent to a guarantee for credit-assessment purposes, then discovering the distinction when enforcement is needed. The deed is not a guarantee. It does not create direct liability from the Mainland parent to the bondholder. It creates a contractual obligation from the Mainland parent to the offshore issuer (or to the trustee on behalf of the issuer), and the issuer's payment obligation to bondholders is a separate, upstream obligation.

This two-contract structure means that a trustee seeking to enforce a keepwell deed claim must establish breach of the deed, obtain judgment or an award on that breach, and then – separately – ensure that the damages or specific-performance obligation flows into cash that can be applied to bond redemption. A judgment that the Mainland parent breached the keepwell deed is not the same as a judgment ordering payment to bondholders. The intermediate steps matter.

A second error is underestimating the sequencing constraint. The interim-measures arrangement allows a Hong Kong-seated arbitration to seek Mainland asset preservation before an award. But that relief requires an application to a Mainland court, which must accept jurisdiction and satisfy itself that the procedural requirements are met. This takes time – time during which a Mainland group aware of impending proceedings can, in some circumstances, restructure its Mainland asset holdings. Early advice, and early procedural steps, can prevent the enforcement position from deteriorating.

A third error, less frequently discussed, is failing to model the PRC enterprise-restructuring scenario as a base case rather than a contingency. For Mainland groups with significant leverage, enterprise restructuring is frequently the most likely outcome of a large-scale default. The bondholder's practical recovery in that scenario depends not on keepwell deed enforcement but on the treatment of offshore claims in the restructuring plan – and that depends on how the claim is characterised, whether it is filed in time, and whether the offshore trustee is effectively represented in the Mainland proceedings.

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

To discuss how the keepwell and EIPU mechanics apply to your cross-border position, contact info@lockhartyip.com.

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

The route available in any keepwell enforcement depends on the specific documents and the current state of the Mainland group. A structured read of the position requires working through a matrix of scenarios.

Where the keepwell deed contains a Hong Kong arbitration clause, the Mainland group remains a going concern, and there is a measurable ratio breach: the arbitration route under the HKIAC Rules applies, interim measures from Mainland courts are available under the 2019 arrangement, and simultaneous enforcement in Hong Kong and the Mainland is available under the 2021 amendment to the Supplemental Arrangement. The timing is governed by the arbitration timetable – an expedited award can, in appropriate circumstances, issue within six months of file transfer. Residual risk centres on whether Mainland courts will grant interim measures and on asset-preservation timing.

Where the keepwell deed specifies Hong Kong court litigation, the Mainland group remains a going concern, and there is a breach: proceedings in the Court of First Instance produce a judgment. Under Cap. 645 (in force 29 January 2024), a judgment obtained in proceedings on or after that date is registrable in the Mainland under the connection-based test, without requiring an exclusive-jurisdiction clause. Timing depends on the Court of First Instance's commercial list timetable. Residual risk centres on the public-policy and other defences the Mainland parent may raise in the registration proceedings.

Where the Mainland group has entered enterprise restructuring: keepwell and EIPU claims are creditor claims in those proceedings. The enforcement route shifts to participation in the restructuring. Recovery depends on the restructuring plan. The trustee's role is to file the offshore claim, press for recognition at a meaningful level of priority, and negotiate the plan terms. This is primarily a PRC-law exercise, conducted alongside PRC-law counsel. The Hong Kong cross-border role is in coordinating the offshore trustee's position and the cross-border recognition of any steps taken in Hong Kong.

Where the structure has treaty-access components that are now challenged by the applicable tax authority: the holding-entity substance analysis takes priority. The FSIE conditions and the treaty beneficial-ownership test must be satisfied at the level of the intermediate entity. If substance is absent, a restructure of the holding arrangement may be required before the tax position can be stabilised. This is an interaction point between the bond-support structure and the tax-positions practice.

Where the risk sits now: our read

The commercial position for keepwell deed holders improved in one clear respect on 29 January 2024: the registration of Hong Kong court judgments in the Mainland is now available without the exclusive-jurisdiction straitjacket. That is a genuine improvement in the creditor's procedural position.

But the deeper risks are structural and have not changed. The drafting quality of legacy keepwell deeds remains uneven. The SAFE-control variable remains present. And the enterprise-restructuring scenario – the most likely outcome for a large-scale offshore bond default by a PRC group – routes the practical recovery question into Mainland insolvency proceedings, not offshore courts. The best enforcement position is one built before default arrives: clear ratio triggers, a monitored compliance mechanism, an arbitration clause in the deed, and early coordination between the offshore trustee, the Hong Kong adviser, and the Mainland-law team.

We regularly see positions in which the legal analysis is strong but the procedural sequencing was handled in a way that reduced recovery options. The window to preserve an enforcement position – through interim measures, early filing, or negotiated standstill – is often shorter than principals and their counsel expect.

If an earlier enforcement attempt, restructuring-plan filing, or structural analysis produced an adverse or stalled result, a second read can identify the strategic error and the routes still open.

To discuss how the keepwell and offshore bond support position applies to your specific structure and counterparty, write to us at info@lockhartyip.com.

The interaction with holding structure and tax-position practice

A keepwell and offshore bond support structure does not sit in isolation from the broader holding architecture. In our cross-border practice, we consistently see three interaction points that require coordinated analysis rather than siloed advice.

The first is the beneficial-ownership and substance condition. Where the offshore issuer is also the vehicle through which interest income flows to an intermediate holding entity claiming treaty relief, the substance requirements of the applicable double-taxation agreement and the FSIE regime apply at that intermediate level. A structure that was tax-efficient under pre-FSIE conditions may now have an annual substance assessment to satisfy. The Pillar Two minimum top-up tax, applying for fiscal years beginning on or after 1 January 2025, adds a further layer for in-scope MNE groups.

The second is the Significant Controllers Register requirement. Since 1 March 2018, Hong Kong-incorporated companies – including intermediate holding entities used in offshore bond structures – must maintain a Significant Controllers Register identifying ultimate beneficial owners. For a bond support structure that routes through a Hong Kong entity, the SCR disclosure obligation is ongoing and must be maintained accurately. Failure to do so is a compliance risk that can affect the entity's utility as a holding or intermediate vehicle.

The third interaction point is re-domiciliation. The Hong Kong inward company re-domiciliation regime that commenced in 2025 allows an eligible non-Hong Kong company to re-domicile to Hong Kong while preserving its legal identity. For a bond support structure that currently sits in a BVI or Cayman vehicle, this regime introduces a new option for migrating the issuer or the intermediate holding entity onshore – relevant where Hong Kong court jurisdiction, HKIAC arbitration access, or the Cap. 645 judgment-registration benefit is desired but the current domicile makes it harder to rely on those mechanisms. Parties should verify the current commencement date and eligibility criteria before acting.

For counsel managing a structure with all three of these features simultaneously – a keepwell position, a treaty-access holding layer, and a Hong Kong intermediate entity – the analysis spans disputes and arbitration, holding structure, and tax positions. The details are set out in our Holding Structures practice overview, and related cross-border considerations appear in our matter notes on a Singapore holding company over a Hong Kong operating entity and on a holding structure prepared for a UAE listing or exit.

Micro-scenario: enforcement sequencing on a stalled position

An institutional debt-fund manager with a position in offshore bonds issued by a BVI SPV, supported by a keepwell deed from the Mainland Chinese parent, engaged our desk in the autumn of 2025. The parent had failed to maintain the liquidity ratio required under the keepwell deed for two consecutive quarters. The fund's external counsel had concluded that a Hong Kong court judgment was unenforceable in the Mainland under the prior regime. No enforcement steps had been taken. The position had stalled for several months.

We reviewed the position under the Cap. 645 regime in force since 29 January 2024. The keepwell deed contained a Hong Kong court submission clause that, while non-exclusive, satisfied the connection test under the new Ordinance. The Mainland parent remained incorporated in the PRC with identifiable Mainland assets. We assessed that a Hong Kong Court of First Instance judgment on the ratio-breach claim, obtained in proceedings commenced after 29 January 2024, would be registrable in the Mainland under the new mechanism.

We also identified that the keepwell deed's covenant language was of the "ensure" rather than "best-efforts" type – a critical drafting distinction. The claim was therefore a money claim on clear contractual terms, not a discretionary undertaking. We coordinated with the bond trustee on the procedural sequence, mapped the interim-measures options under the Mainland–Hong Kong arrangements, and prepared the analysis for the fund's investment committee. The matter remained active as at the date of this publication. The qualitative point is that the enforcement route that had been regarded as closed was not closed – it had simply not been re-assessed under the post-January 2024 regime.

A second cross-border scenario involved a European family office holding a substantial position in offshore bonds of a PRC real-estate group. The group had entered the PRC enterprise-restructuring process. The offshore trustee had not filed the keepwell and EIPU claims in the restructuring within the initial creditor-claim window. The family office engaged our desk to assess whether late-filing or supplemental participation was available. We analysed the cross-border position between the Mainland restructuring proceedings and the offshore indenture trustee's position under the Hong Kong trust deed, and coordinated with PRC-law allied counsel on the Mainland-side claim mechanics. The practical outcome depended on the Mainland court's exercise of discretion on late filing – which is qualitative and fact-specific. The structural lesson is that the restructuring scenario must be modelled as a base case, not an afterthought.

Objection handler: the myth that the new regime solves the enforcement problem

The most persistent misconception in the market since January 2024 is that Cap. 645 "fixes" the enforceability problem for keepwell deeds. It does not. What it does is remove one procedural barrier to one enforcement route in a structure that involves multiple barriers and multiple routes.

The exclusive-jurisdiction problem is solved for judgments obtained in qualifying proceedings commenced after 29 January 2024. The drafting-quality problem is not solved: a poorly drafted covenant remains poorly drafted. The SAFE-control problem is not solved: a Mainland parent that cannot lawfully transfer funds offshore during a control episode cannot fund an offshore issuer regardless of what the deed says. The enterprise-restructuring problem is not solved: once Mainland proceedings are opened, the offshore creditor's position is determined in those proceedings under PRC law.

Counsel and investors who read the new regime as a transformation of the keepwell deed into an enforceable instrument across all scenarios are making a category error. The regime is a significant improvement in a specific procedural respect. The underlying structural tensions remain.

The honest assessment – which is what our desk provides – is that the keepwell and offshore bond support structure is a credit instrument with meaningful, manageable legal risk if the drafting is strong, the monitoring is disciplined, and the enforcement options are mapped before default rather than after. If those conditions are not met, the enforcement position is difficult regardless of which regime applies.

Related practices

• Disputes & Arbitration – cross-border enforcement, arbitral awards, interim measures in Mainland–Hong Kong proceedings
• Tax Positions – FSIE regime, treaty beneficial-ownership analysis, Pillar Two for offshore holding structures

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