Gazette Case: Suzhou Industrial Park Haifu Investment Co., Ltd. v. Gansu Shiheng Non-ferrous Resources Recycling Co., Ltd., Hong Kong Diya Co., Ltd., and Lu Bo
VAM clauses requiring the target company itself to provide performance-based cash compensation are invalid where they give the investor a relatively fixed return detached from the company's operating results and thereby harm the company or its creditors. Compensation undertakings made by the target company's shareholders remain valid in principle absent a statutory ground of invalidity. The case became the foundational authority for the distinction between company-side and shareholder-side VAM obligations.
Holding
VAM clauses requiring the target company itself to provide performance-based cash compensation are invalid where they give the investor a relatively fixed return detached from the company's operating results and thereby harm the company or its creditors. Compensation undertakings made by the target company's shareholders remain valid in principle absent a statutory ground of invalidity. The case became the foundational authority for the distinction between company-side and shareholder-side VAM obligations.