When Listing Is Not An Option: How Offshore Processes Can Support A Successful Investor Exit Strategy

key takeaways

• Increased regulatory scrutiny in China and stricter listing requirements in the US have resulted in a reduction in the number of listings of Chinese companies (typically structured with a Cayman Islands, BVI or Bermudan listing vehicle) in the US. There are also reports of increased efforts to discourage the use of VIE structures and/or for existing VIE structures to be unwound.

• Practically, both these factors combined impact the ability of VC and PE investors to exit their investment. 

• The Cayman Islands, British Virgin Islands and Bermudan corporate and restructuring regimes offer established tools, including schemes of arrangement and mergers, to support solvent restructurings including corporate reorganisations and the unwinding of VIE structures. 

Implications for VIE structures and offshore re-organisation

Increased scrutiny by regulators in the United States and in China is making it difficult for Chinese companies to list in the United States. Such listings, where international venture capitalists and private equity investors are involved, would typically be structured with a Cayman Islands, British Virgin Islands or Bermuda listing vehicle holding the underlying business. What was once a mark of prestige for companies in China and an attractive exit for their venture capital and private equity investors is now somewhat more uncertain.

A filing must be made with the China Securities Regulatory Commission (the 'CSRC') before any Chinese company (including those utilising an offshore holding company) lists in the United States. Industry observers have noticed that the CSRC's vetting process has slowed, with the last approvals being granted in the first half of 2025. A variety of reasons have been put forward for this, including geopolitics, national security review processes and increased efforts to discourage the use of variable interest entity ('VIE') structures designed to permit foreign investment and listing on onshore stock exchanges (such as NASDAQ) without violating China's foreign ownership restrictions.

In the United States, the Nasdaq proposed stricter listing standards in September 2025 to protect against market manipulation. This has affected smaller listings, which form the bulk of Chinese companies looking to go public on exchanges in the United States.

The pipeline of Chinese companies looking to complete an IPO in the United States is being squeezed from both ends, and there have been reports that the CSRC are actively encouraging the unwinding of VIE structures. As VIE structures tend to incorporate the use of offshore entities in the Cayman Islands, the British Virgin Islands and Bermuda, it is useful to note that these jurisdictions permit a company to compromise with its shareholders and/or creditors through a statutory mechanism called a scheme of arrangement, in addition to other restructuring options, such as a statutory merger. A scheme of arrangement is a court-supervised process implemented between a company and its shareholders and/or creditors (or any class of them) which may be used to effectuate any form of compromise or arrangement provided that there is 'give and take' from both the company and the relevant stakeholders (and it is not limited to effecting debt restructurings in distressed situations). Relevantly, schemes of arrangement are often utilised to facilitate solvent corporate reorganisations, mergers and redomiciliations and can also be utilised to implement the unwinding of a VIE structure in appropriate circumstances.

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