It is the formation with which the rank is taken. The time this has to happen is before 10.30 pm ish server time. To be safe it is good to do it earlier since it takes some doing.
Each time a player in position 1 or 2 fights for a stake, the formation is reset, even if he wins. This makes it seem like they take older formations.
Garanteed that if rank 1 and 2 are taken with only the main in there and they don't attack others for stakes or get attacked, you will have only mains in heaven palace.

Very important is that when they are attacked and win, the formation gets reset too, so you could say that every time there is a contest about the rank, it re calculates the winner and puts the formation of that moment in.

I have personally experimented with the time frame and up till 10.30 ish is the best I can give you. I once did a change after 11.15 pm and it did not stick.