Study On The Legal Validity Of“valuation Adjustment Mechanism”

Valuation Adjustment Mechanism(VAM)as an important way in private equity investment is got more and more attention in domestic market.VAM is an enterprise valuation adjustment contract which is signed by the investor and the financier.The criterion is whether the target enterprise can achieve certain performance and investors and financiers will exercise their rights by the criterion.VAM has the characteristics of dependency,valuation adjustment and uncertainty.It's legal nature is aleatory contract.The judicial cases of VAM show a trend of increasing year by year,Judges can only judge cases on the basis of the relevant provisions of the contract law or the company law because of lack of legislation and they don't have a common reference standard.At present,there are many disputes on the determination of the validity of the VAM,including the single determination standard of the bet subject,the lack of the examination of the legality of the compensation clause and the consideration of the rationality of the performance goal setting.Combined with the relevant disputes in the theoretical circle to solve the problems in the judicial trial,we can through three aspects to build the legal effectiveness of the VAM to determine the judicial standard.Firstly,in the aspect of subject,typed discrimination should be applied.When the investor makes a bet with the financing company,the financing company reflects the overall will of the company to take the guarantee responsibility for the investor,and the compensation limit is within the range of the company's distributable profits,in this case,the VAM shall be deemed to be effective.When the investor and the financier make a bet,we can determine the validity of VAM through their aspiration and whether there is any abuse of shareholders' rights.When the VAM involves state-owned enterprises,whether the party who has the obligation to submit the report performs the relevant obligation in time is an important factor for judging the validity of the bet agreement.Secondly,in the aspect of compensation clause,legitimacy review should be carried out.The compensation clause includes cash compensation clause and equity repurchase clause.In the aspect of cash compensation clause,we can determine the validity of it through whether shareholders comply with the company's capital maintenance principles to ensure the normal operation of the company,and whether to protect the interests of corporate creditors effectively.And the key to determine the validity of the equity repurchase clause is whether to limit the repurchase amount and guarantee the freedom of financing activities without violating the equity transfer provisions.Finally,inthe aspect of set reasonable performance goals,the target enterprise shall accurately locate and objectively predict the future performance to ensure the rationality of its setting and make a standard bet agreement.In the judicial trial,it is important to build a unified standard to determine the validity of VAM.It not only helps to make up for the lack of legislation,so that the relevant disputes can be effectively solved,but also helps to promote the healthy and orderly development of the private equity investment field.