Legal Validity Analysis Of Valuation Adjustment Clause In Pe Investment Agreement

Last decade, with the significant development of private equity investment within the territory of China, the valuation adjustment mechanism as an important financial tool plays an important role at the same time also caused great controversy.Valuation adjustment clause solved the problem of information asymmetry between the parties of investor and financer. When the parties cannot reach consensus on the expected valuation of target enterprise, the dilemma will hinder deals agreed upon and reduces the efficiency of capital flows. The valuation adjustment clause make up for the market defects. As a kind of probability arrangement about enterprise value between investor and financer parties, both sides stake in valuation adjustment clause toned down the asymmetric information situation, set aside their differences to reach a deal; Reduce the costs of investor and financer evaluation and transaction; Reduce the risk of investment; The compensation mode of target enterprise set in the terms of the valuation adjustment would stimulate the target enterprise to complete the pre-set performance objectives.The valuation adjustment clause, however, there are some controversy and differences in the effectiveness in domestic. First of all, PE investment effectiveness between the investor and financer, but the valuation adjustment clause in the investment agreement is only between investors and target company shareholders to take effect. Under the existing legal framework of our country, as “sea rich investment” case, there is no legal obstacle in PE investor and shareholders of financer committed in valuation adjustment clause, but valuation adjustment clause between PE investors and finance companies is invalid. The invalid reason is violation of the company’s statutory capital system; damage the interests of the company and creditors;in violation of the principle of company profit distribution, etc. The discussions of academia about valuation adjustment clause are mostly confined to the evaluation of the referee basis mentioned above. And the related research on the valuation adjustment clause itself, how to identify its effectiveness, which factors shall be subject to, and the consequence of effectiveness is insufficient. This is also the problem this article will mainly solve.The writer believes that after the implementation of the investment agreement, the investor shall be deemed its shareholders identity in the external relationship, investors should be shareholder identity and fully qualified when involved in company shareholder rights and obligation. But, the terms of the valuation adjustment shall be deemed as the internal agreement of "equity value adjustment" between investor and financer, which should belong to the contractual relationship adjustment. The valuation adjustment clause itself should be effective on the independence in the situation of no external interest relations involve. And the rules of validation and the factors influencing the effectiveness also have a certain particularity.