Study On Legal Validity Of VAM In China

Valuation Adjustment Mechanism is originated in common law,it is signed between investor and financing party to avoid the risk of investment in the field of Private Equity.With the development of Private Equity,VAM is used more and more often in recent years.Now then Chinese legislature and the judiciary on VAM is still in a blank state.This paper study on the legal validity of VAM in the field of the Private Equity in the angle of Chinese law.Nowadays study on legal validity of VAM focus on its legality, I haven’t found papers that are involved with VAM’s effective,modifiable and cancelable,uncertain effectiveness and invalid situations.To avoid the performing of VAM in some certain circumstance,this paper put forward the opinion that we should apply Doctrine of Change of Circumstance in VAM with conditions.Finally,to perform VAM smoothly in China,I propose three advices.For legislators,We should confirm the legality of VAM and introduce Doctrine of Change of Circumstance to China as soon as possible.For judges,when they are judging the legal validity of VAM,they should combine Contract Law with Company LAW.For financing party,before the relevant laws and regulations established,they could either choose the offshore areas to perform VAM or avoid the terms of VAM that are conflict with laws and regulations then put forward the procedure of financing party’s vote to solve the conflict between the perform of VAM and financing party’s statutory majority voting.Beside that,they should enrich the terms of VAM to protect the benefit of themselves. All above are my innovations.In chapter one,this paper briefly introduce the concept and the value of existence of VAM to prepare for the introducing of the legal qualitative of VAM in the following paper.Then I analyse VAM’s subject,object and the content,moreover, I carry on further study on VAM’s legal validity through analyse the relationship between VAM and the Innominate contract,Aleatory contract,Option contract and Conditional contract. In chapter two,this paper affirm the lawful statue of VAM through oppose the objections.However, to make a VAM establish and effective,it should have general effective elements first. Some internationally accepted terms of VAM are conflict with the Chinese Company Law and Securities and Futures Commission’s relevant regulations. So,VAM has different legal validity in different situations,it could be Effective Contract, Contact of Modification and Cancellation,Uncertain Effectiveness Contract and Invalid Contract.In chapter three,this paper analyse the necessary,applicable rules and the situation of application of doctrine of change of circumstances in VAM.Further negotiation obligations should be ruled in order to prevent the abuse use of doctrine of change of circumstances in China.In chapter four,this paper elaborate VAM’s present situation of legislation and justice,put forward the idea of ameliorating the validity of VAM in China. First of all,we should establish the legal statue of VAM, after that we should judge VAM according to Company Law then enrich the terms of VAM to avoid the short-term behaviour. Before the legal statue of VAM has been established, the Enterprises could avoid the legal risk by not agrees some terms of VAM or perform VAM in offshore areas.At last,we should introduce the Doctrine of Change of Circumstance to VAM with conditions to prevent the unfair situation that caused by performing VAM.This chapter is the final foothold of this paper.