The Legal Risks And Precautions Of VAM

As China's economy continues to deepen its opening to the outside world,private equity investment,the most common form of investment in the international capital market,has entered China.Compared to difficult and costly bank loans,it is a cumbersome,highly audited IPO listing process,and private equity investment is Its efficiency,convenience,and to a certain extent eased the pressure on corporate finance.However,due to the information asymmetry,the investors and the financing parties cannot agree on the valuation of the financing party.As the valuation adjustment tool,the two parties only focus on the future performance of the company,so the VAM becomes an investor.Signed the necessary provisions of the investment agreement.However,there are no specific department laws and legal provisions governing the VAM in the current laws of our country.There are different theoretical and practical theories in the academic and practical circles;and there are mainly four types of VAM in practice.In form,these four types of VAM involve different legal provisions."Haifu Investment v.Gansu Shiheng Case" has undergone the first trial,second trial,and retrial procedure.The result and reason of each decision are diametrically opposite.All this shows that due to the lack of legislation,its nature and effectiveness are not clear enough.In practice,the VAM faces many legal risks,and the role of the VAM is not fully realized.The trial standards of various courts are different.By studying the legal risks of VAM,proposals are made to prevent legal risks.This article is divided into four parts for discussion.The first is a review of typical cases of VAM.In the case of Haifu Investment v.Shiheng Company,Lanzhou Intermediate People's Court found that the bet agreement violated Article 8 of the "Sino-Foreign Equity Joint Venture Law" and the Gansu Higher People's Court identified the bet agreement as a loan contract,and the Supreme People's Court reconsidered the bet agreement.It is effective,but the premise is that the financing party is the subject other than the target company.It shows that under the situation that the VAM is left blank in our country,the courts of our country have different attitudes towards the validity and nature of the VAM in practice.The second part is an overview of the VAM.Define the concept of VAM.The VAM is an unnamed contract,which distinguishes between VAM and launching luckily contracts and conditional contracts.The four main manifestations of the VAM-equity vs.gambling,equity repurchased,equity priority,and cash compensation.The third part is the legal risk of VAM.The first is the legal risk of the main body,and the Supreme Court's jurisprudence makes it legal for the shareholders who believe that the investor and the target company are gambling.Second,legal risks existed in different types of VAM.Ownership repurchase-type VAM may be found to be invalid due to violation of Articles 74 and 142 of the Company Law;cash compensation VAM may be recognized as loan contracts.Applicable to the relevant provisions of the lending contract,and then generate legal risks;equity priority type of VAM violates the principle of the same share of the same rights.Third,there are regulatory risks.There is a legal risk that the VAM may violate the market supervision of the Securities Regulatory Commission,the Ministry of Commerce,and the SASAC.The fourth part is the legal risk of preventing VAM.Taking the legal risks that are faced by investors and financing as a starting point,propose countermeasures.The investment and financing parties should select the equity stake-based agreement;on the investment side,they sign the VAM with the financing party's shareholder,carefully select the gambling with the state-owned enterprise,and do a good job of the financing party's due diligence;the financing party must maintain control over the enterprise and design Incremental gambling goals or repeated games.At the end of the legislation,the law on the nature and effectiveness of the VAM was implemented,and a system of preferential shares was established and improved.