Update: asset protection for a principal with Mainland China exposure

Enforcement risk across the Mainland–Hong Kong corridor has sharpened. Since the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) took effect on 29 January 2024, a Mainland money judgment can be registered and executed against Hong Kong-sited assets in a single court step. For a principal whose wealth spans both sides of the boundary, that change alters the urgency of asset-protection planning in a direct and practical way.

Asset protection for a principal with Mainland China exposure turns on one question: does the structure in place today hold against a registered Mainland judgment, a cross-border enforcement step, or a forced-heirship claim from a jurisdiction that does not recognise the trust? The answer depends on the governing instrument, the sequence of steps, and – critically – whether the structure was in place before any relevant claim arose.

This briefing sets out what has changed, who is most exposed, and the immediate action principals and their advisers should take.

What Has Changed and Why It Matters Now

Cap. 645 removed the old exclusive-jurisdiction requirement that had made cross-border enforcement cumbersome. Under the previous regime, a Mainland court judgment was enforceable in Hong Kong only where the parties had agreed in writing that the Mainland court had exclusive jurisdiction. That condition is gone. A Mainland judgment that meets the revised connection-based test under Cap. 645 may now be registered directly with the Court of First Instance.

The practical consequence is significant. A principal who holds Hong Kong-sited assets – shares in a Hong Kong operating company, a bank account, real property – and who faces, or may face, civil liability on the Mainland now has materially less time between the issue of a Mainland judgment and its enforcement in Hong Kong. The registration step can move quickly.

At the same time, forced heirship (mandatory inheritance shares imposed by the law of a family member's domicile or nationality) remains a live risk wherever a principal's family map crosses jurisdictions that apply civil-law succession rules. Hong Kong law has no forced-heirship regime of its own. The 2013 reform of the Trustee Ordinance (Cap. 29) – which abolished the rule against perpetuities for Hong Kong trusts and strengthened the firewall against foreign forced-heirship claims – provides a structural answer, but only if the trust is properly constituted and the Hong Kong-law choice is defensible on the facts.

These two pressures – enforcement acceleration and succession exposure – interact. A principal who has not updated their structure since the reciprocal-enforcement regime came into force should treat that gap as a live risk point, not a planning item for a later date.

Who Is Affected Across the Corridor

The principals most immediately exposed sit in one or more of the following positions. First, a principal with operating assets or personal assets in Hong Kong and ongoing or foreseeable civil disputes on the Mainland – commercial, employment-related, or arising from corporate liability. Second, a principal whose existing holding structure pre-dates Cap. 645 and was designed around the old exclusive-jurisdiction test, which no longer governs. Third, a principal with a family that spans Mainland China and Hong Kong (or a third jurisdiction) where succession rights have not been mapped across the relevant legal systems.

In our cross-border private-wealth practice, we see a fourth category that is often missed: the principal who has a discretionary trust in place but whose letter of wishes, trustee relationship and trust siting have not been reviewed in light of the current enforcement environment. A trust that was robust five years ago may carry structural weaknesses today if the enforcement corridor has widened and the principal's asset profile has changed.

For more on how cross-border succession risk materialises in practice, see our matter note on forced heirship and cross-border succession risk.

The Immediate Action

Three steps are immediate.

First, map the enforcement perimeter. Identify every asset sited in Hong Kong and every actual or foreseeable civil liability on the Mainland. That map tells you whether any existing structure stands between a registered judgment and the assets – and whether it was in place before the liability arose.

Second, review the governing instrument. The Trustee Ordinance (Cap. 29) provides the statutory base for a Hong Kong-law trust. If a trust is already in place, confirm that it was constituted under Hong Kong law, that the trustee relationship is active and documented, and that the firewall provisions have been correctly engaged. If no trust is in place, the question is whether the current timing – after the enforcement regime changed – still permits a structure to be put in place without running into a fraudulent-disposition analysis.

Third, map the family's succession position. Where family members are resident on the Mainland or in a civil-law jurisdiction, confirm whether forced-heirship rules apply to any part of the estate and whether those claims could be brought against assets now held in a Hong Kong structure. Our guide on private trusts for family assets with Mainland China exposure sets out the structuring considerations in detail.

The sequence described above is the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps taken. That is where the structure holds or fails.

To discuss how the current enforcement regime applies to your position and what steps remain available, write to us at info@lockhartyip.com or review our Private Wealth practice.

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Related

• Private Wealth
• Forced Heirship Cross Border Succession Risk Matter
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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.