A Study On The Legal Validity And The Legal Path Of Valuation Adjustment Mechanism

As the capital market becomes more open,private equity investment has blossomed in China,the number of the case on the performance of Valuation Adjustment Mechanism(hereinafter called VAM)increased in judicial practice.This thesis summarizes the court's judgement on VAM from 2017 to 2018.In 32 cases,17 VAM cases involve only the original shareholder of the target company,and 15 cases involve the target company.In VAM involving the target company,the reason of failure is the incompletion of aim by the target company or that its profit performance does not meet the requirements.The target company has not listed in the main board or the new third board(an over-the-counter market for growth enterprises).The target company need to repurchase the share of the investors or assume the joint and several liability.Courts often do not uphold the legal validity on the grounds of violation of doctrine of capital maintenance and detrimental interests of companies and creditors.After the Supreme People's Court's rehearingof the case of the GanSuShiHeng company in 2012,the court cause a misunderstanding and interpreted that the VAM between the investors and the original shareholder of the target company as valid and the VAM between the investors and the target company as invalid.The target company will be involved in this in an indirect way.For the investors,the target company assumes the joint and several liabilities to reduce investment risk.This thesis analyzes the difference between the indirect way adopted by the ShanDongHanlin Company case and the direct way adopted by the GanSuShiHeng Company case.In addition,this thesis analyzes the court's attitude towards VAM of cash compensation and the VAM of share repurchase.When the aim of the VAM is not met,the target company need to make cash compensation and repurchase the shares.It does not necessarily abuse the shareholders'rights,damage the creditor's interests and withdraw the capital.On the basis of affirming the legal validity of VAM,the court should also make use of the doctrine of capital maintenance to facilitate its decision making.If after paying the compensation and repurchasing shares,the target company still maintains in liquidity and sustainable operation,the court should affirm the legal validity of the VAM.This research is divided into five chapters:The first chapter:Ananalys is of the differences between the indirect way adopted by ShanDongHanlin company case and the direct way adopted by the GanSuShiHeng Company case.In the GanSuShiHeng Company case,the court does not affirm the legal validity of the VAM.But in the ShanDong Hanlin company case,the court affirmed the legal validityon the grounds that it was effective through an effective internal decision-making process.The second chapter:It mainly deals with the basic theoretical issues of VAM,and analyzes the characteristics and institutional value of VAM.It provides a theoretical basis for the analysis of the legal validity of VAM.The third charter:This thesis analyzes the attitude of courts,arbitral institutions,and regulatory agencies on the legal validity of VAM.This thesis summarizes the court's judgements on VAM from 2017 to 2018.In 32 cases,17 VAM cases only involve the original shareholder of the target company,and 15 cases involve the target company.In the VAM involving the target company,reason of failure is the incompletion of aim by the target company or that its profit performance does not meet the requirements.The target company has not listed in the main board or the new third board(an over-the-counter market for growth enterprises).The target company needs to repurchase the shares of the investors or assume the joint and several liability.Courts often do not uphold the legal validity on the grounds of violation doctrine of capital maintenance and detrimental the interests of companies and creditors.The forth chapter:This thesis presents author's own insights on the legal validity of VAM.It cannot simply analyze the legal validity of VAM by the identity.When the aim of the VAM is not completed,the target company need to make cash compensation and repurchase shares.It does not necessarily abuse the shareholders'rights,damage the creditor's interests and withdraw the capital.The fifth chapter:This thesis provides a detailed proposal for the legal validity of VAM.On the basis of affirming the legal validity of VAM,the court should also make use of the doctrine of capital maintenance to facilitate its decision making.If after paying the compensation and repurchasing shares,the target company still maintains in liquidity and sustainable operation,the court should affirm the legal validity of the VAM.It also needs to optimize the regulatory environmental,and improve and standardize the preferred stock system.