A Legal Research Of Valuation Adjustment Mechanism In Private Equity

Valuation Adjustment Mechanism, commonly known as Gambling Mechanism, originates from western countries with developed market economy. As a commonly used investment tool in Private Equity, it sprang in Chinese market together with the influx of foreign capital at the beginning of the twentieth century. The mechanism plays two roles in valuation of financing. On one hand, it safeguards the rights and interests of its investors; on the other hand, it stimulates the careful management. Under the current laws and regulations in our country, Securities investment fund, first implemented on June, 1st, 2013, first put non-public funds into the adjustment range. Moreover, it used a special chapter for the principles of non-public funds. The interim supervision and management of private equity fund, first put into use on August, 21 st, 2014, listed corresponding management measures for non-public investment fund. Thus, the above two ensure non-public investment fund a legal status in China. However, Private Equity was brought into the regulatory scope of neither of them. Apart from that, Valuation Adjustment Mechanism was not clearly regulated. This paper is to study related legal problems of Valuation Adjustment Mechanism in Private Equity from the perspective of laws of China.This paper contains three chapters, that is, introduction, body and conclusion. The body is made up of four parts:Part One: An overview of the Valuation Adjustment Mechanism. As the research object of this paper is Valuation Adjustment Mechanism in Private Equity, this part elaborates Private Equity from three aspects----concept, establishing mode and operation mode, and analyses Valuation Adjustment Mechanism through causes, subject, object and content.Part Two: legal analysis of Valuation Adjustment Mechanism. Using legal nature and legal force of Valuation Adjustment Mechanism as the entry point, this part first responds to the conflict between theory of conditional contract and theory of aleatory conditional contract about Valuation Adjustment Mechanism by theorists, deeming that it belongs to the latter; Then this part studies the judgment of legal force of Valuation Adjustment Mechanism and demonstrate its legitimacy by referring to three different verdicts of the case on Haitong-Fortis Private Equity Fund Management.Part Three: the applicable status and legal risk of Valuation Adjustment Mechanism in China. This part starts with the applicable status of Valuation Adjustment Mechanism, then points out its legislative blank and deficiencies, and elaborates its risk from different subjects and phases.Part Four: the prevention and control measures against risk of Valuation Adjustment Mechanism. Based on Part Three, this part puts forward two prevention and control measures: cautious due diligence, correct design of Valuation Adjustment Mechanism, and impeccable dispute settlement mechanism to minimize the risk and loss.Under present laws and regulations in China, special related regulations of Valuation Adjustment Mechanism in Private Equity are basically in the blank. And practically, most of the related laws refer to Contract Law, Company Law, Partnership Enterprise Law, Law on Foreign-funded Enterprises and so on. Based on present regulations and laws in China, this paper studies issues on legal force of Valuation Adjustment Mechanism in Private Equity from perspectives of existing law of our country; it also studies the prevention and control measures against risk of Valuation Adjustment Mechanism in practice by using comparative analysis method. In the meantime, this paper integrates legal theories and judicial practices to analyses issues on the legal nature, force and prevention and control against risk to help companies to know and skillfully use the regulations of Valuation Adjustment Mechanism in Chinese law environment. When signing Valuation Adjustment Mechanism, they can draw lessons from both successful and failing practices, fully evaluate the law risk of Valuation Adjustment Mechanism and reasonably design terms, avoiding falling into the trap of bet and finally achieving win-win between investors and financiers.