Research On The Performance Obstacles Of Valuation Adjustment Mechanism

The application of the law on the Valuation Adjustment Mechanism has been controversial in the practical affairs and academic circles.From Haifu case to Hanlin case and then to Huagong case,the evolution of judicial decisions reflects the changing trend of gradually open attitude towards the dispute of Valuation Adjustment Mechanism.The Minutes of Civil and Commercial Meetings has shifted the focus from the effectiveness in the past to the performance in the present,but it has also caused a series of legal problems on the performance level.As an atypical contract,under the framework of the contract law,the intervention effect of the mandatory provisions on the principle of capital maintenance in the corporate law on the Valuation Adjustment Mechanism should be limited to the performance stage of the contract,which has nothing to do with the validity of the contract.The reasons are as follows.Firstly,the path of invalid contract does not meet the necessity requirement of the analysis method of normative intention.Secondly,different legal evaluation methods are applied separately to the contract behavior as the reason and the contract performance as the result.Thirdly,the Valuation Adjustment Mechanism under the state control might be valid but not yet in force,at which time the contract cannot be performed in reality.At the same time,the path of contract validity-performance barrier contributes to guide a more normal market order and save more transaction costs so as to achieve higher transaction efficiency,which is more economic rationality.Since the debt is still able to be performed objectively,this obstacle to performance should be regarded as delay in performance.In the absence of statutory or agreed exemption,the party who delays in performance shall bear liabilities for breach of contract including actual performance,damages or liquidated damages.The court should apply the basic rules of the contract law and correctly understand the internal principle of Valuation Adjustment Mechanism when adjusting the liquidated damages.When deciding whether the target company has obstacles to performance,we need to rethink the traditional theory of capital maintenance principle and fully draw on some experiences from the legally available funds standard,solvency test and business judgment rule under the board centralism in American practice.In light of the extraterritorial experiences,the judicial authority in China should pay more attention to the company’s ability to continue as a going concern when hearing the disputes of Valuation Adjustment Mechanism and try to shape the system of powers and responsibilities centered on the board of directors to solve the defects including the wrong logical relationship between repurchase and capital reduction,overprotection of creditors and the sacrifice of flexibility and efficiency in the operation of corporate capital.As for the pending issues in the Minutes of Civil and Commercial Meetings,we should strengthen the construction of risk and return sharing rules between the investor and the target company,including increasing equity compensation and two-way Valuation Adjustment Mechanism,emphasizing the investor’s non-capital investment obligations to the target company and reinforcing the investor’s responsibility for the failure of gambling.