Research On The Validity Of Valuation Adjustment Mechanism In Private Equity

Gambling agreement,also known as the Valuation Adjustment Mechanism(refers as VAM),refers to the contract arrangement reached by investors and the target company or the shareholders in private equity(refers as PE)investment concerning on titling some rights to either side when a certain event takes place.VAM originated in the West capital markets.With the deepening of cross-border mergers and acquisitions and the rise of the private equity market in China,VAM has frequently appeared in the field of private equity investment in China.However,in the case of Suzhou Haifu Co.Ltd v.Gansu Shi Heng Co Ltd gambling agreement dispute in 2012,the VAM was judged invalid during the first and second instance judgment,and ultimately the validity of VAM was confirmed by the Supreme People’s Court.This case raised widely discussion both in academics and practitioners,which is known as "the first case of VAM in China’s PE".At present,"the first case of VAM in China’s PE" is still continue raising disputes.This article attempts to lay analysis on the question of the validity of the gambling agreement based on China’s current legal system,combined with the analysis of specific circumstances of the current civil and commercial legal system and the spirit of the legislation and the development of private market.On one hand,the question of the validity of the gambling agreement relates to the basic theory of the Civil and Commercial Law.On the other hand,the question of the validity of the gambling agreement consider the characteristics of commercial cases.This article aims to explore the legal nature of VAM from different points of view and understanding of the academic and practical.Simultaneously on the basis of defining the legal nature of VAM,the article will put forward the viewpoint of that we should make a distinguish between civil trial and commercial trial.The judgment of commercial trial can not based only on the traditional concept of civil trial,especially for the legal issues on the gambling agreement.In order to investigate the effectiveness of the legal problems of the agreement on gambling,the court should respect the independence,flexibility of commercial activities under the circumstance of the the law of our country.This article is divided into four parts.The first chapter leads to the dispute about the legality of VAM through "the first case of VAM in China’s PE".On the basis of this the article would compare the difference between courts’ decisions.The second chapter raises the "invalid theory" and "valid theory" upon the question of the VAM,comprehensively apply the General Principles of Civil Law,Contract Law,Company Law,Civil and Commercial Law to analyze the question of the validity of VAM.The fourth chapter will demonstrate the legalization of VAM based on the results of the analysis of the previous chapter,lay analysis on "the first case of VAM in China’s PE" in accordance with the logic and viewpoints of this article,and finally give conclusion of that we shall respect the autonomy of the commercial subject,use business ideas and thinking to guide commercial trials on the trial process.We should based on a commercial trial mode,and been according to the commercial customs applicable,then recognized the effectiveness of VAM.Each level of the People’s Courts should establish new idea to judged commercial trials of new commercial law disputes,actively encouraged and advocated the VAM at the situation of not contrary to mandatory provisions of law cases.Thus commercial trial and civil trial can truly exist together,the commercial trial can better serve the development of market economy in our country which is the ultimate goal of establishing commercial trial with our characteristics.