Research "gamble Agreement" Legal Issues China Private Equity Investments

Private Equity investment (referred to as “PE”), rapid development in the globalcapital market, is still in the new developing stage in China, which has developed itsown features. Valuation adjustment mechanism(referred to as “VAM”), also known as“Gambling Agreement”，which is an exotic in China, is used widely in PE, attentiongradually for the people. In the classic cases of the VAM, some financer and investorhave achieved win-win situation, but others have lost their money into the bargain.Recently “the first case of VAM” have drawn widespread attention, this caseexperienced fist instance stage、 second instance and, and appealed to theSupreme People’s Court. On November,2012, The Supreme People’s Court haspassed landmark judgment on this case, which is also a direct motive and realisticmeanings of writing about VAM.VAM is mainly used in PE, and the current situation of PE in China has produced“Chinese VAM”. Through the analysis about the classical cases of the VAM onChina’s capital market, the paper introduces the concept of the VAM and its features,and discusses the nature of the VAM to conclude that VAM is an aleatory contract.Because there is no clear stipulation about VAM under Chinese law, the legitimacy ofVAM is a debatable problem in law theory and practice, which is directly related tothe practice of VAM. So the paper mainly discussed the legitimacy of VAM underChinese law, especially, the analysis about legitimacy based on the related party’sview of the VAM in investment filed and the three judgments on “the first case ofVAM” is the bright spot of the paper. Meanwhile, the paper proposes some advicesand opinions on the practical application of VAM in PE, hoping to provide useful helpin theory and practice.