Neibaowaidai, onshore guarantees for offshore loans, are a key form of cross-border guarantee in which the guarantor is registered in mainland China while both debtor and creditor are incorporated abroad. In this area, where neibaowaidai intersects with international arbitration, general counsel are shifting from risk control to proactive value creation for corporate creditors through foresight and precise execution. This article outlines the key challenges and offers systematic strategies for addressing them.
Jurisdiction and governing law
Neibaowaidai transactions are inherently complex, involving multiple parties, onshore and offshore banks, borrowers, guarantors and counter-guarantors, and spanning several legal systems. Once an offshore debtor defaults and the guarantee is called, general counsel face a “dual-track dilemma” of jurisdiction and governing law.
Huang Xingchao
Partner
AnJie Broad
Tel: +86 185 1372 7323
E-mail:
huangxingchao@anjielaw.com
Where the transaction documents stipulate foreign law, such as Hong Kong or English law, and assign jurisdiction to an offshore court, for example, Hong Kong’s, complications arise once the onshore guarantor performs or becomes subject to recovery claims.
Issues such as corporate capacity, internal authorisation, board or shareholders’ resolutions approving external guarantees, and the validity of counter-guarantees must all be reviewed under Chinese law. This creates a dual, even multi-track, framework in which foreign law governs performance but Chinese law governs compliance, often resulting in parallel proceedings.
For instance, a letter of guarantee may place disputes under the jurisdiction of a Hong Kong court, yet if the Chinese counter-guarantor defaults, the creditor must still sue in a Chinese court. Co-ordinating two sets of proceedings and reconciling potentially inconsistent rulings not only increases the cost of dispute resolution but may also delay recovery. Anticipating these risks early is essential for effective enforcement planning.
Full-cycle defence
In addressing the above-mentioned challenges, general counsel must move beyond a reactive, “firefighting after the fact” mindset and instead establish a full-cycle system for both prevention and enforcement across the entire transaction process, from deal structuring to performance crisis management. This approach unfolds in two main stages.
Transaction design stage. At this stage, the key is to prevent disputes at the source through clause design and regulatory compliance checks. The focus falls on the following four priority actions.
(1) Adopt asymmetric jurisdiction clauses to maintain strategic advantage. To avoid procedural chaos due to parallel proceedings, transaction documents may include an asymmetric jurisdiction clause, under which the creditor may bring claims in multiple jurisdictions through litigation or arbitration, while the debtor may do so only in a designated forum. This mechanism enables the creditor to choose the jurisdiction that best aligns with asset distribution and enforcement efficiency.
(2) Anchor all disputes in a single arbitral institution to ensure finality. Compared with cross-border litigation, arbitration offers superior confidentiality, professional expertise and efficiency in the enforcement of awards. General counsel should encourage creditors and related parties to agree that disputes arising from both the guarantee and counter-guarantee contracts be submitted to a neutral arbitral institution experienced in financial matters, such as the Shenzhen Court of International Arbitration or the China International Economic and Trade Arbitration Commission.
To consolidate proceedings, associated clauses may further specify that even where contracting parties differ, all relevant participants may be brought into a single arbitration through “third-party beneficiary” or “joinder to arbitration agreement” provisions. This prevents fragmented claims and repetitive enforcement. In practice, counsel should liaise in advance with the chosen arbitral institution to confirm the feasibility of consolidating multiple guarantors into one case.
(3) Conduct dual compliance reviews of the guarantee and preserve core evidence in parallel. Creditors have a formal duty to review the guarantor’s capacity, while general counsel must take an overall view to ensure the guarantee is lawful under both Chinese law and the relevant foreign law. At the same time, an evidence preservation mechanism should be established.
In terms of compliance review, attention must be paid to differences between legal systems. Under Hong Kong law, for example, a guarantee may still take effect even without a shareholders’ resolution, provided the signatory can reasonably be deemed authorised by virtue of their position. Third parties are not required to verify internal approvals. By comparison, China’s Civil Code requires corresponding board or shareholders’ resolutions for external guarantees. Failing that, the guarantee may be deemed invalid.
From an evidentiary perspective, a “categorised and traceable” documentation system should be built to preserve key materials in real time: cross-border communications (emails, minutes of meetings), corporate resolutions and foreign exchange registration certificates among them. Such records form crucial evidence for later disputes and help prevent impaired claims resulting from missing or defective documentation.
(4) Complete foreign exchange registration in advance to avoid performance barriers. Although the Foreign Exchange Administration of Cross-border Guarantees specifies that registration does not affect a contract’s validity, an unregistered neibaowaidai may face delays at the performance stage. The guarantor could be required to make supplementary filings or undergo inspection before purchasing foreign currency, potentially delaying or blocking fund transfers abroad.
General counsel should therefore ensure that transaction documents make registration or filing with the State Administration of Foreign Exchange a precondition for the guarantor’s obligations, reducing compliance risks and later enforcement disputes.
Performance and crisis management stage. When an offshore debtor defaults and the guarantee is called, general counsel must respond swiftly, focusing on three priorities: safeguarding assets; consolidating evidence; and clarifying the applicable law.
(1) Secure core assets early to establish an enforcement foundation. Before or during arbitration, general counsel should immediately apply to the court where the assets are located for preservation measures or injunctions, freezing key assets of the counter-guarantor such as property, bank accounts and equity interests, to prevent fraudulent transfers.
In practice, this may involve checking property registries for asset clues, then liaising with the court as soon as arbitration is filed to obtain and enforce a preservation order. Close follow-up until the assets are sealed helps reduce the risk of “winning the case but recovering nothing”.
(2) Engage foreign legal experts to ensure accurate application of the law. Where disputes involve foreign law, such as Hong Kong or English law, arbitrators may lack full familiarity with the details. General counsel can appoint qualified foreign experts, for example, a Hong Kong barrister, to issue legal opinions on key issues, setting out relevant legislation and case practice. This assists the tribunal in applying foreign law accurately and minimises the risk of errors in interpretation affecting the award.
Huang Xingchao is a partner at AnJie Broad. He can be reached by phone at+86 185 1372 7323 or by email at huangxingchao@anjielaw.com
