The Research Of Legal Issues About Valuation Adjustment Agreement In China

Valuation adjustment agreement is commonly adopted in the financingarea for investing in developing enterprises by investor companies in thewestern. It is generally regarded as a means of business investment betweenthe investor companies and the investee companies on the basis of futurefinancial performance about the investee companies. Before the appearanceof valuation adjustment agreement, the investor companies alwaysunderestimate the value of the investee companies because of uncertainties offuture financial conditions and unclear about the concrete information ininvestee companies. These conflicts can be solved throughout the applicationof valuation adjustment agreement. Both sides will formulate a specificperformance indicator， if the indicator can be reached, the investeecompanies should be rewarded by additional shares or cash in investeecompanies, and vice versa.With the high-speed growth of the Chinese economy, more and moresmall and medium-sized companies have the urgent demands for financing.Nowadays, valuation adjustment agreement is widely used in the financingmarket, especially after Mengniu Miracle which a company successfullyusing valuation adjustment agreement to get financial support. However, therecent case of Haifu v Shiheng remind people to consider about the validationof the valuation adjustment agreement. Some scholars think, in the contextof China law, the application of VAM agreement will definitely infringe theinterests of creditors of the investee companies, and meanwhile violate therule of risk-sharing. This article tries to clarify the essence of valuation adjustmentagreement, and meanwhile prove the validity and enforceability of valuationadjustment agreement throughout the analysis of Haifu case. Besides, thisarticle also tries to offer some solutions for post-value adjustment under thespace of China law.