The Haifu case (1) caused consternation in the private equity sector until a clarifying decision of the Supreme People`s Supreme Court in December 2012. The Supreme Court struck the Tribunal`s second instance opinion that PE investments were a „common risk sharing“ and that investors were not entitled to a guaranteed profit, regardless of business developments. The Supreme Court (i) recognized the legitimacy of the investment model pe, (ii) took full account of all the interests of the project company, the creditors of the project company and the shareholders of the project company, (iii) in particular the VAM agreements (assessment adjustment mechanism) between the project company and the shareholders of the DEM agreements between the partners and confirmed the validity of that company on certain terms. C. When a fiduciary company applies a „withdrawal capital“ model, documents such as the capital repurchase agreement are signed in advance with a party to the financing. However, in the event of a dispute, the party to the financing may be able to establish the validity of the agreements related to them by insisting that these agreements are not based on genuine intentions, making the repurchase of shares unenforceable. The Valuation Adjustment Mechanism (VAM) is a type of clause commonly used in PE/VC transactions, with the investor entitled to charge the target entity`s initial shareholders at a price calculated according to the indicated pricing method or to compensate that investor for a specified amount. The funds through which the investor acquired equity could be the subscription of new equity or an acquisition of equity from the original shareholders. Since the performance of a VAM is a potential liability for the original shareholders, individual shareholders often ask the titled question out of concern for their family`s fortunes. On the basis of its various commercial conditions, VAM may concern contract law, corporate law and other legal issues, which is indeed complex, and there was no uniform legal principle on the validity, effectiveness or implementation of such VAM agreements in practice prior to the publication of the protocol. From the „Haifu Case“ [case no: (2012) Min Ti Zi No. 11, published on November 7, 2012.), known as the „first CASE of VAM,“ in which the Supreme Court held that „vam between the investor and the shareholder of the target company is valid, but the VAM between the investor and the target company is not valid“ in 2012 in the „Huagong Case“ [Case: (2019) Min Su Zai No 62, published on April 3, 2019., in which the Jiangsu Higher People`s Court has ruled that the VAM between the investor and the target company is valid, as there is no legal circumstance of disability and also raises the question of the possibility of vaM delivery in 2019, the investigation has shown, during these seven years , that the judicial system has moved from a relatively conservative position to one that respects the autonomy of the will. Meanwhile, in the arbitration system, most arbitration groups respect the principle of autonomy and maximizing the interests of shareholders, and therefore fully respect the freedom to make valid VAMs.
A VAM (also known as a „credit agreement“, Pinyin: duidu xieyi) is a contractual agreement between an investor (usually a venture capital fund) and the shareholders of a holding company (usually the largest shareholder, founder or real controller). In some cases, the company is also a contracting party. The parties agree on a number of conditions (future financial or non-financial indicators of the portfolio company`s performance), which allows the investor to exercise a contractual right to adjust the entity`s valuation at a low or no cost to investors.