Update: warranties, indemnities and W&I insurance in an Asia deal

Cross-border M&A in the Asia-Pacific region has grown materially more complex at the deal-protection layer. Sellers and buyers active across Greater China, South-East Asia and the principal offshore holding centres – the British Virgin Islands and the Cayman Islands – are encountering heightened insurer scrutiny, shifting governing-law preferences and a widening gap between what the warranty and indemnity package promises and what it can deliver when tested. This briefing sets out the current position and the immediate steps a principal or general counsel should take.

In an Asia-structured deal, the alignment of governing law, deal-protection instrument and the enforceability of any warranty or indemnity claim across the relevant jurisdictions is the single most consequential structural choice. Where that alignment fails – because the purchase agreement sits under one law, the holding entity is incorporated in another, and the assets are in a third – the practical value of a warranty and indemnity (W&I) insurance policy (a buy-side or sell-side insurance product that transfers the financial risk of a warranty breach from the transacting parties to an insurer) can be significantly reduced. Hong Kong's common-law courts, English as a working language of the judiciary, and the enforceability infrastructure available under the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance make it a natural governing-law and dispute-resolution seat for deal documentation across the corridor.

The developments affecting this market are procedural, structural and practical. We address each in turn.

What is affecting deal-protection packages now?

Three overlapping pressures are reshaping how warranties, indemnities and W&I insurance function in Asia transactions.

First, insurers writing Asia-Pacific policies have tightened their underwriting standards on cross-border deals where the underlying assets sit in Mainland China or where the holding chain passes through multiple offshore layers. The effect is felt most acutely in deals where the due-diligence scope was compressed, where financial records were prepared under a non-IFRS or non-GAAP standard, or where the operating entity sits below a BVI or Cayman vehicle that was itself recently restructured. Underwriters are seeking greater documentary evidence of substance, cleaner corporate histories and, increasingly, opinions on enforceability in the asset jurisdiction before they will accept a risk at standard pricing.

Second, the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance, which came into force on 29 January 2024, changed the enforcement calculus for deal parties using Hong Kong-law agreements. A buyer who wins a warranty claim under a Hong Kong-law purchase agreement and obtains a Court of First Instance judgment now has a direct registration route into the Mainland courts for both monetary and certain non-monetary relief – without the exclusive-jurisdiction precondition that previously constrained the 2008 regime. For deals with Mainland-based sellers or Mainland-situated assets, this materially strengthens the practical value of a Hong Kong governing-law clause. Any deal team that structured its SPA under a different law before January 2024, or that has not revisited its template documentation since, should reassess.

Third, arbitration clauses in M&A documentation – once treated as interchangeable with court jurisdiction – are now being selected with greater care. The HKIAC Administered Arbitration Rules, which took effect on 1 June 2024, include updated provisions on emergency relief and expedited proceedings. For a buyer pursuing a warranty claim against a seller who has distributed proceeds and may be hard to locate, the availability of emergency-arbitrator relief – ordinarily completed within 14 days of file transmission under those Rules – is a meaningful procedural advantage. The Rules also set a closure timeline that imposes discipline on the proceeding.

Who is affected across the corridor?

The immediate audience is any party currently in a deal process – or holding an existing SPA – with any of the following features: a BVI or Cayman holding entity above Mainland-China or Hong Kong operating assets; a W&I policy written on Hong Kong or English law; a seller that is a Mainland entity or individual; or a dispute-resolution clause that has not been reviewed against the post-June 2024 HKIAC Rules and the post-January 2024 enforcement regime.

In our cross-border M&A practice, we regularly see deals where the governing law of the SPA, the seat of the holding entity, and the jurisdiction of the W&I insurer's preferred dispute-resolution process each point in a different direction. That misalignment is not academic. It determines whether a warranty claim can be pursued efficiently, whether interim measures can be obtained while a seller dissipates assets, and whether any judgment or award can be registered and executed where value actually sits.

Family offices and principal investors closing proprietary deals without the institutional deal infrastructure of a large trade buyer are particularly exposed. They may lack the internal resource to identify the alignment gap before signing. W&I insurance, correctly structured, can substitute for a portion of that missing institutional rigour – but only if the policy, the SPA and the enforcement route are designed together. For further context on the structural choices across the deal perimeter, see our M&A & Transactions practice page.

What to do now

There are three immediate actions for any principal or counsel with an open deal or a legacy SPA.

First, review the governing-law and dispute-resolution clause in the SPA against the current enforcement environment. If the agreement pre-dates January 2024 and does not sit under Hong Kong or English law with a Hong Kong seat, the enforcement route into the Mainland may be weaker than the deal team assumed at signing.

Second, if a W&I policy is in place or being negotiated, confirm that the insurer's preferred dispute-resolution mechanism aligns with the SPA clause and that the insured's ability to pursue a claim is not dependent on a jurisdictional step the other party can frustrate. This is not a standard check in every deal. It should be.

Third, where the deal involves a joint-venture structure or an offshore holding vehicle, confirm that the warranty and indemnity package extends through the chain in a way that survives a corporate-layer argument. Our published matter note on a joint venture involving a Cayman Islands partner sets out how that structural question was worked through in one cross-border context. Our separate briefing on carve-out and asset deals involving Hong Kong addresses how the deal perimeter is defined where only part of a group is transferred.

The sequence above describes the standard position. Your matter turns on the specific documents, the jurisdictions engaged and the order of steps – and those details determine whether the deal-protection package functions as intended.

For a structured review of the warranty, indemnity and W&I insurance position in your current or pending Asia deal, write to us at info@lockhartyip.com.

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