Research On Private Equity Investments In The Legal Validity Of An Agreement On Gambling

Originated in the Western capital markets, Valuation Adjustment Mechanism (VAM) emerged as a result of the continuous innovation spirit of western venture capitalists as well as the harmonious development of market and economy. It was introduced into China with the rise of the Chinese capital market. However, when put into practice, VAM has constantly been denounced by both scholars and financial market participants. In particular, controversy frequently arose over its validity thanks to its inconsistency with the provisions of many laws like the Corporation Law in China. In the case of Haifu vs Shiheng, the retrial judgment by the Supreme People’s Court on November7,2012partially denied VAM’s validity, which is undoubtedly a heavy blow to private equity (PE) investors in China.On the other hand, VAM is clearly preferable in PE investment, as both investors and investees need it to narrow the gap between their valuation of the investee company. Therefore, we should allow flexibility rather than impose uniformity on the implementation of VAM.Currently, most of the studies of VAM focus on the national regulation of VAM instead of its validity, which is an indispensable element for VAM to work.In view of this, this thesis will focus on the validity of VAM by analyzing the case of Haifu vs Shiheng from the perspective of Civil and Commercial Law. The thesis will probe into the legal relations involved in the case, determine their legal natures, discuss the general and special elements for VAM to go into legal effect, explore the possible inside and outside risks implied in VAM’s validity, and finally, propose some precautions against such risks.