The Study Of The Legal Effect Of Valuation Adjustment Mechanism

Valuation Adjustment Mechanism was originated in the United States,in our country it is also commonly used in private equity investment.The essence of the Valuation Adjustment Mechanism is valuation and adjustment.It can check the real valuation of the target company and achieve the real value in the form of rectification.Ultimately it can guarantee the rationality of the valuation of the target company and trade fair.The investment side and the financing side can downplay the valuation dispute,and it has enormous impetuses to promote both sides to reach an investment agreement.However,in judicial practice of our country,the effectiveness of Valuation Adjustment Mechanism is hampered by multiple factors,which reflects the backward of the principle of capital maintenance in our country.Through the amendment of the rules of the principle of capital maintenance in our country,we can promote the application of Valuation Adjustment Mechanism in our country.Based on the database of China Judgements Online,30 cases of Valuation Adjustment Mechanism disputes were gathered.The empirical analysis of the application and the court's standpoint of Valuation Adjustment Mechanism in our country will be based on the sample of these 30 cases.This paper will be divided into four parts:In the first part,I will introduce the concept,classification and characteristics of Valuation Adjustment Mechanism and point out that the core of Valuation Adjustment Mechanism is the terms of equity price adjustment provisions and share repurchases.Then I will summarize the judicial practice attitude in our country and analyze the theoretical basis of these court judges.In the second part,I will analyze the validity of the price adjustment provisions of equity.This term can be divided into cash compensation and equity compensation terms,which can close the value difference and stimulate better management of the target company.In the judicial practice the Court may negate the effectiveness of the adjustment provisions due to the violation of "risk-sharing in investment field","abuse of shareholders' rights" or "illegal profit distribution".In this paper,through the analysis of the reasons above I think these reasons should not become the factors that hinder the effectiveness of adjustment provisions.In the third part,I will analyze the effectiveness of the share buy-back clause.Equity buy-back clause is used when the target company was unable to complete the agreed business objectives,then the investor can smooth out of the target company.In practice,both sides could have disputes about share buy-back price on whether "it is so-called lending",and whether it is in violation of the provisions of prohibiting companies to repurchase equity.In the fourth part,I will reflect the recognition of the effect of Valuation Adjustment Mechanism in our country,and try to provide a solution to the recognition of the effect of Valuation Adjustment Mechanism from the angle of the modification of the principle of capital maintenance in our country.When it is the target company's duty to afford the liability,the principle of capital maintenance in our company law will become the factors that affect the effectiveness of the agreement.Based on analysis about this kind of case,we can found that in the applicable process these rules may imbalance the interests of the investors and financiers,making Valuation Adjustment Mechanism invalid is not the best choice to protect the interests of creditors,and may even cause the confusion in the application of law which causes the court to make conflicting referee.Therefore,we should rebuild our capital maintenance principle,revising " the prohibition of the withdrawal of capital "provisions,reducing the limitation of the company's share buyback,introducing the rule of equitable subordination in the bankruptcy law.Then we can provide a better legal environment for the application of Valuation Adjustment Mechanism,and it can also benefit the construction of a multi-level,three-dimensional investment market in our country.