Research On The Validity Of The Valuation Adjustment Mechanism With The Target Company As The Counterparty

As a financing tool,Valuation Adjustment Mechanism(hereinafter referred to as "VAM ")is widely used in the field of Private Equity investment in China.VAM is a contractual arrangement between investment and financing parties to solve the valuation dilemma caused by information asymmetry.In judicial practice,the court made the invalidation of the VAM of the target company as a counterparty,and the target company has reasonableness and necessity to participate in the VAM as a counterparty.This article analyzes the validity of the VAM between the target company and the opposite party from the theoretical analysis of the Contract Law and the Company Law.According to the principle of differentiating the contract's validity from the performance of the contract,it is determined that the recognition of the validity of such agreements should not be confused with the obstacles to the performance of the contract.Instead,the agreement should be judged in accordance with the requirements for the entry into force of the Civil Law contract and the invalidity clause of Article 52 of the Contract Law.Because the VAM with the target company as the counterparty does not violate the relevant compulsory norms of the Company Law and is necessarily invalid,judicial practice should fully respect the contractual arrangements of commercial entities to determine the validity of the agreement carefully.When the People's Court is trying a gambling dispute case where the target company is a counterparty,it should not only apply the provisions of the contract law,but also take into account the relevant principles of the company law.It is necessary to encourage investors to invest in target companies,but also to implement the principle of capital maintenance,risk sharing,and creditor interest protection mechanisms,and to balance the interests of investors,target companies,and creditors in accordance with the law.