The Effectiveness Of Valuation Adjustment Mechanism

The valuation adjustment agreement is a necessary contract in private equity investment. It promote the efficiency of private equity investment, on the other hand the system promote the development of private-equity industry by constraining both sides in the contract. But the effectiveness of the valuation adjustment agreement problems has always been the focus in theoretical and practical circles, how to set up legally effective articles in the agreements is an important issue both for the investors and the financiers, as well as promoting the development of the private equity industry.In 2009, "Hai Fu Case" attracts public’s attention, triggering the study and research on VAM, mainly related to the VAM legal nature and legal validity of the VAM, legitimacy, the contractual nature of the VAM and application of VAM. is mostly about the legal nature of VAM, the loophole of the “aleatory contracts” theory is that there is no distinction between possibility of human efforts to achieve their goals. The second theory is the “aleatory contracts” theory, although VAM and conditional contracts and similar, but actually there were essential differences between them.In practice, the courts, arbitration agencies and financial regulators conducted a series of studies from different positions. The court still follow the old rigid thinking mode in a new type of business problem, which hinders the innovation of economic life of our country. Different from the court, commercial arbitration agency which as the Department of Justice for commercial disputes, pay more attention to the protection of the autonomy of the parties. As long as the agreement is to follow the interests of equality, voluntariness and reciprocity, fair and equitable, based on fundamental principles of honesty and credit between, the articals of the VAM agreements is believed valid.China’s financial regulators opened "VAM" supervision, while CSRC treat VAM as "restricted area", which requires thorough cleaning prior to listing, but Beijing Equity Trading Center accept the existence of the VAM, also allowe the listed companies which contains the VAM agreements.Through the analysis on the system of theoretical controversy aspects and practice determination of the effectiveness of the VAM, we give a classification and analysis of the terms of the agreement from the perspective of the factors,.According to the judicial practice, choose the company shareholders or actual controllers as opposite party is best choice, and do not set too deviated performance indicators and the repurchase rate on the content setting, and avoid the invalid clause such as "veto power" articles. Finally, according to the case of court and arbitration institution, we give the reasonable advice on how to set up effective articles of the agreement.