Research On The Legal Nature And Effect Of The Valuation Adjustment Mechanism

As an indispensable valuation adjustment agreement for equity investment,Valuation Adjustment Mechanism(hereinafter referred to as “VAM”)has been frequently used in China investment and financing activities in recent years,which has been playing an irreplaceable role in promoting the investment and efficiency to the investment and financing.Meanwhile,the effectiveness of the VAM has been plagued the academia and practice,it is especially necessary to set the permissible and practical terms of the VAM,so as to adjust and promote the both sides of the VAM and the entire equity investment and financing industry.In 2009,the three-years-lasted trial,known as “the first case on VAM”,“the Haifu Investment Case” has come to public attention,which has been triggering the research and discussion on the VAM trough the whole community,among which mainly related the legal nature,the legal validity and application and so on to the VAM.Firstly,there are numbers of scholars hold that VAM is one of conditions-attached contract,although both two are similar,they are different in the start of the efficiency and consequences.Secondly,the gambling contract theory,the loophole is that there is huge distinction between purely occasional randomness and the target company operators' initiative to achieve the goal,and mistaken investment and financings' interest as opposite.Thirdly,guarantee contract theory,there is a big difference between the two from the nature,content and implementation.The above three theories can not accurately locate the nature of the VAM,and classify it as a civil contract,such processing method is contrary to the autonomy of the main businessmen.The particularity and independence of commercial behavior is different from the civil behavior,the paper define the legal nature through combining the above three doctrines and the uniqueness as an unnamed contract in the commercial field.In practice,the courts,arbitrators and financial regulators have carried out a series of explorations on the effectiveness of the VAMs from different points.Dealing with the new type of commercial problems,the courts stick to the rigid thinking model in the judicial referee,which completely considers that the VAM between investors and the target company as invalid,and between investors and shareholders as effective.This referee thinking,inhibits the financial innovation to a large extent and is not conducive to the development of commercial activities.Unlike the courts,the commercial arbitration institution tend to the protects the main business autonomy,the logo orientation to the VAM set between the investor and the target company is more open and flexible.Also,the financial regulatory authorities gradually liberalize the VAM regulatory ideas.Although the Securities and Futures Commission lists the VAM as the “restricted area” for the listing,which shall be completely cleaned up before the listing,to some extent,under certain conditions,it is acceptable that the shares of the company's VAM,as well as the listed company's directional capital increase includes the VAM.By analyzing the theoretical basis of the VAM system and the normative thinking of the different regulatory authorities,the paper summarizes the cases that disclosed by the court and the arbitration institution,the paper provides practical and applicable recommendations to set articles of the VAM.According to the judicial practice,it is recommended and more reasonable that investors choose the shareholders of the company or the actual controller as the contract counterparts;as for the content,it's better not to set too high deviation from the actual performance indicators and the repurchase rate,and avoid the article “one-vote veto”,which is easy to be identified as invalid terms.Finally,combining with the above-mentioned recognition of the nature of the VAM,this paper proposes to unify judicial referee's understanding to using commercial trial thinking to adjust the VAM.