Study On Legal Validity Of Valuation Adjustment Mechanism

In recent years,with the rapid development of Private Equity in our country,Valuation Adjustment Mechanism (VAM) has been widely applied to finance, merger and reorganization. A variety of companies use the VAM to absorb foreign investment. Yet, asthere is no support in the laws and regulations, the legality of VAM is always been arguing in China. Haifu Investment Company suing the Shiheng Company in Dec.2009, which is the first lawsuit of the VAM, has attracted wide attention to the problem of VAM. The case lasted four years, and finally got an effective judgment. Although the "Haifu case" has been settled, a serious problems of VAM is still been discussing. Combined withthe judgment of “Haifu case”, the article deeply explains the nature and legality of VAM, and reveals the trend of VAM in our country. Based on the above reasons, this article is started with a specific case. By the introduction of VAM, the article focuses on its legal nature and its legal effect in our current legal framework, clarifies basic attitudes tothe VAM and the values of its legality in the judicial practice, and finally takes several reasonable advises to improve the relevant Legislation of China.The article can be divided into six parts:The first part is the index:it introcuces the backgound of the article.The second part introduces the basic facts of the Haifu case and the judgment andlegal basis of the courts at all levels which lesds to the arguing contentious issues.The third part is about the overview of VAM, including the definition, the nature and elements on legal relations.The forth part is about the legal problem of VAM. The author identified the legalefficient of VAM firstly, and then analysis in the aspects of current legislation, judicial and so on.The fifth part is to take reasonable advices of the improvement of relevant legislation, basing on the legal effect of VAM under our current legal framework.The sixth part is conclusion. Through the analysis of the case in the text, theauthor thinks that the valuation adjustment mechanism has its legal and economic valueas a kind of untypical aleatory contract.We should formulate special laws andregulations to affirm its legal effect and pave the way for private equity investment inthe rapid development of capital market in our country.