Update: cross-border due diligence for an Asia

Acquisitions targeting assets across the Mainland China–Hong Kong corridor have always carried a specific diligence burden. What has shifted is the legal environment in which that burden must now be discharged. Two developments have materially altered the calculus for deal teams: the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), in force since 29 January 2024, and the evolving economic-substance requirements attached to BVI and Cayman holding entities above Hong Kong operating companies.

Cross-border due diligence for an Asia acquisition must now account for post-closing enforcement exposure, not just pre-signing risk. The governing instruments – the Companies Ordinance (Cap. 622), the Arbitration Ordinance (Cap. 609), and the reciprocal-enforcement regime under Cap. 645 – together define where a buyer's claims will eventually sit and whether a remedy obtained in one jurisdiction travels to where the assets are.

This briefing sets out what changed, who it affects, and the immediate action for deal teams active on the corridor.

What changed and why it matters for acquisition diligence

Before Cap. 645 took effect, a buyer who discovered a breach of warranty post-closing faced a materially harder path to enforce a Hong Kong judgment against assets held through Mainland-registered entities. The old regime required an exclusive jurisdiction clause pointing to a specific court – a condition that most acquisition agreements did not satisfy.

Cap. 645 removes that exclusive-jurisdiction requirement. It replaces it with a connection-based test. A Mainland judgment that is effective and final can now be registered with the Court of First Instance and enforced in Hong Kong. Equally, a Hong Kong judgment travels the other direction through a certified-copy mechanism.

The enforcement angle is not academic. A buyer acquiring a target with mixed Mainland and offshore assets now holds a stronger hand in post-closing disputes. But that hand depends entirely on the acquisition vehicle, the governing law of the share purchase agreement, and the arbitration or dispute-resolution clause chosen at signing.

Deal teams that structured the acquisition agreement without reference to the new enforcement corridor may find the clause they chose no longer represents best execution. That is the structural gap diligence must now identify.

Who is affected across the corridor

The immediate audience is any buyer or investor completing, or about to commence, an acquisition of a target with operating assets in the Mainland, a holding vehicle in Hong Kong, the BVI, or the Cayman Islands, and any material contract counterparties or liabilities on either side of the boundary.

This covers a wider perimeter than it may appear. A European or Middle Eastern group acquiring an Asian manufacturing or technology business through a BVI holdco is not insulated from the enforcement question. The BVI entity is transparent for enforcement purposes once a judgment or award reaches the Hong Kong courts. The sequence of the diligence review must therefore trace the asset-holding chain from the top of the structure to the operational entity registered in the Mainland.

The Significant Controllers Register requirement under the Companies Ordinance (Cap. 622), in force since 1 March 2018, adds a further layer. Where the target is a Hong Kong-incorporated company, diligence must confirm the SCR is accurate and current. Gaps there are a separate compliance exposure for the buyer on day one of ownership.

In our cross-border practice, we see deal teams focus heavily on the target's financials and regulatory licences, then treat the legal-structure layer as a closing mechanic. That sequence is increasingly difficult to defend. The structure is the enforcement position.

The immediate action

Three steps warrant attention now, before heads of terms are agreed.

First, map the dispute-resolution clause against the enforcement landscape. An arbitration agreement pointing to Hong Kong as the seat under the Arbitration Ordinance (Cap. 609) and the HKIAC Administered Arbitration Rules gives the buyer access to the interim-measures Arrangement with Mainland courts – in force since 1 October 2019 – and an award capable of enforcement under the established mutual-recognition regime. A clause pointing to an offshore or foreign seat does not carry those attributes.

Second, review the holding-vehicle layer for economic-substance compliance. BVI and Cayman entities above Hong Kong operating companies are subject to substance regimes that can affect the enforceability of arrangements made through those vehicles. Diligence that does not address substance is incomplete.

Third, identify Mainland-registered assets early and assess whether any are subject to regulatory clearance before the acquisition can close. The clearance process in the Mainland operates on its own timeline and does not automatically align with deal timetables set by offshore transaction documents.

The centre of gravity for this work is the alignment of vehicle, governing law, and clearances across the full deal perimeter – not any single document in isolation.

For a structured assessment of your acquisition structure and the enforcement routes available across the relevant jurisdictions, write to us at info@lockhartyip.com.

Frequently asked questions

What are the main risks in cross-border due diligence for an Asia acquisition?

The principal risks fall into three categories: structure risk (the holding vehicle and governing law do not support post-closing enforcement), clearance risk (Mainland or offshore regulatory approvals are needed but not identified before signing), and information risk (the Significant Controllers Register and corporate records of the target are incomplete or inaccurate). Each risk materialises after closing, not before, which is why diligence must address the enforcement chain as well as the asset position.

Which jurisdiction's law applies to cross-border due diligence for an Asia acquisition?

No single jurisdiction governs the whole exercise. The acquisition agreement's governing law – typically Hong Kong law for corridor deals – determines the buyer's contractual remedies. Mainland law governs the target's operating entities and any regulatory clearances required there. The holding vehicle's jurisdiction (BVI, Cayman, or Hong Kong) governs corporate formalities. Diligence must engage all three layers, and international counsel co-ordinates across them.

What documents are needed for cross-border due diligence for an Asia acquisition?

The core document set covers the constitutional documents and shareholder registers of each entity in the holding chain, the Significant Controllers Register for Hong Kong-incorporated entities, material contracts with Mainland counterparties, evidence of economic substance for any BVI or Cayman entity, and all regulatory licences or approvals held by the operating entity. Where Mainland assets are involved, notarised and apostilled translations are typically required for Hong Kong-court filings.

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

Update: cross-border due diligence for an Asia acquisition

What changed and why it matters for acquisition diligence

Who is affected across the corridor

The immediate action

Frequently asked questions

Speak with Lockhart & Yip

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