On Appropriate Regulation For The Valuation Adjustment Mechanism Agreement

As a new way of investment, Valuation Adjustment Mechanism Agreement(VAMA) comes into conflict with relevant rules and principles within corporate legalsystem in force. For instance: huge compensations make a impact on Doctrine ofCapital Maintenance. Facing the impact brought by VAMA, how would thelegislature and the judicial office response, prohibit it without exception or dredge itcorrectly? Which not only affects the fate of VAMA, but aslo in relevant withgrasping the idea of corporate law correctly and respecting the willness of investors’.Besides that, it has big impact on protection of investors’ legal rights anddevelopment of system of corporate law. The judicial offices provide an answer byhearing the first dispute of VAMA that occurred in Gansu province. Unfortunately,the first and appeal trial rendered it illegal, giving the people with "banned" judicialguidance. The trial results didn’t convince the common people, the courts’wrongdoing in aspect of legal basis are also criticized by the fields of corporate law.Even though the result of The Supreme Court’s retrial released the information thatthe investors could use VAMA correctly, it still didn’t give the answer whether theinvestors could use the VAMA with the companies or not.Based on the above background, this paper provides and discusses the newreasonably thought to regulate VAMA: giving legal force to the VAMA between thecompany and the investor in principle, but it’s necessary to constrain the scope ofcompensation under the Doctrine of Capital Maintenance. VAMA is virtually a newtrading mode that mixes Valuation Adjustment Mechanism (VAM) with priority rightof equity, which creates a new way to corporate finance and protects the shareholders’ rights. VAM means adjustment of equity price, in the mode that the company signVAMA with the investor, such adjustment in future constitutes that the companyreturn the capital contribution to shareholder. In order to protect the interest ofcreditor, such adjustment should apply to the procedure of reduction of capital.This paper is consist of three parts: introduction, text and conclusion.The introduction mainly introduces the trial basis and results, summarizes thecontemporary research on VAMA. Besides that, it also briefly introduces the researchroute and method of this paper, restricts the research scope, and extracts theinnovation point of this paper.The first chapter of this paper mainly introduces the connotation and essence ofVAMA, which is virtually a new transaction rule that mix VAM with priority right ofequity.The second chapter analyses the impact to the corporate legal system in forcegiven by VAMA. This kind of impact is subject both to rule and to idea of corporatelaw.The third chapter analyses that the judicial office hold the attitude of “blocking”to VAMA, which reflected that the idea of regulation of judicial is hysteretic. It rancounter to the idea that corporate law shall response to the reality of society in time.The chapter four provides one possible thought for the judicial offices to hear thedisputes of VAMA. I also suggest one reasonable way to perfect the function ofVAMA.The conclusion summarizes the basic concept and research result of this paper，and restates that facing the impact of VAMA, it should hold the opinion of “dredgebetter than block”. Perfecting the mechanism of VAMA is the right way of response,and make sure that the investors can use it predictably and the judicial office can hearthe cases lawfully.