China: A Corporate/Commercial: Shanghai (PRC Firms) Overview

Obstacles Posed by Capital Reduction Procedures to the Performance of VAM Share Repurchase Obligations

Valuation adjustment mechanism (VAM) agreements, a commonly used investment arrangement in China, typically include arrangements between investors and shareholders, as well as between investors and the target company. In VAM arrangements between an investor and the target company, the performance of the target company’s obligation to repurchase shares is often conditional upon the completion of the statutory capital reduction procedures stipulated by the Company Law of the People’s Republic of China (the “PRC Company Law”). This article does not address VAM agreements between investors and shareholders. Instead, it only focuses on the obstacles posed by capital reduction procedures to a target company’s performance of share repurchase obligations in investor-target company VAM arrangements, and it offers practical recommendations accordingly.

Validity of VAM agreements and preconditions for performance

Unlike the consistent judicial recognition of the validity of VAM agreements between investors and shareholders, judicial practice in China regarding the validity of VAM agreements between investors and the target company has undergone an evolution from denial to affirmation.

In the landmark 2012 Haifu case, often referred to as the “first VAM case”, the Supreme People’s Court established the view that VAM agreements between investors and the target company were invalid, whereas VAM agreements between investors and the target company’s shareholders were valid. The Court’s primary concern was that, if investors were able to obtain relatively fixed returns through a VAM agreement independent of the target company’s actual operating performance, such arrangements could undermine the interests of the target company itself as well as those of its creditors.

In 2019, the Supreme People’s Court issued the Minutes of the National Courts’ Civil and Commercial Trial Work Conference (the “Nine Minutes”), which recognised, in principle, the validity of VAM agreements between investors and the target company. The Nine Minutes further clarified that the completion of the statutory capital reduction procedures constitutes a prerequisite for a target company to repurchase its shares. This position was subsequently reaffirmed and carried forward in the Interpretation of the Supreme People’s Court on Several Issues Concerning the Implementation of the Company Law of the People’s Republic of China (Draft for Comment) issued in September 2025.

Thus both the legislative spirit underlying the PRC Company Law and the judicial guidance provided by the Nine Minutes recognise, in principle, the validity of VAM agreements between investors and the target company, and explicitly or implicitly confirm the completion of statutory capital reduction procedures as a precondition to a target company’s repurchase of its shares.

However, investors frequently encounter substantial obstacles, including difficulties in passing a capital reduction resolution, overcoming creditors’ objections to capital reduction, and obtaining judicial support for compulsory capital reduction or compulsory repurchase claims. As a result, the statutory capital reduction procedure has become a significant practical barrier to the enforcement of target companies’ share repurchase obligations.

Practical difficulties in completing the capital reduction procedure

Difficulty in passing a capital reduction resolution

The first step in a statutory capital reduction procedure is the adoption of a valid shareholders’ resolution approving such reduction. Pursuant to Article 66 of the PRC Company Law, a capital reduction resolution of a limited liability company must be approved by shareholders representing at least two thirds of the voting rights. In the context of a target company repurchasing an investor’s shares, the approval threshold is even more stringent. Where an investor requires the target company to repurchase only its own shares, while the capital contributions of other shareholders remain unchanged, the transaction constitutes, in substance, a non-pro rata capital reduction. Following the 2023 amendment to Article 224 of the PRC Company Law, such non-proportional capital reductions require the unanimous consent of all shareholders of the target company.

In practice, achieving a two-thirds super-majority vote is already challenging. Where a VAM is triggered due to the target company’s failure to meet agreed performance targets, it becomes even more difficult to secure unanimous consent from the remaining shareholders for the investor’s preferential exit. As a result, the capital reduction procedure may reach an impasse at the very outset.

Difficulty in overcoming creditors’ objections to capital reduction

Even where a capital reduction resolution is successfully adopted, Article 224 of the PRC Company Law requires the target company to notify its creditors or make a public announcement of the proposed capital reduction. Creditors are entitled to demand early repayment of outstanding debts or the provision of appropriate security from the target company.

In circumstances where a VAM has failed, the target company is often in poor financial condition and may be unable to satisfy creditors’ demands for repayment or adequate security. This may prevent the lawful completion of the capital reduction procedure, or result in the reduction being deemed an illegal capital reduction where investors may be required to refund funds already received and may even bear liability for damages to the target company.

Difficulty in obtaining judicial support for compulsory capital reduction or repurchase claims

Where the target company is unable to complete the capital reduction procedure due to shareholder opposition or other impediments, investors also face significant challenges in seeking judicial relief. First, claims requesting courts to compel a target company to reduce its capital are generally unlikely to be upheld. Courts tend to adopt a cautious approach, reasoning that there is currently no explicit legal basis empowering courts to order compulsory capital reductions, and that capital reduction remains a matter of internal corporate governance. Second, where investors directly request courts to order the target company to repurchase shares without completion of the capital reduction procedure, courts likewise tend to exercise restraint and dismiss such claims, taking the view that capital reduction is a precondition for repurchase of shares.

Although, in some arbitration cases, tribunals have supported the claims for the share repurchase without completing the capital reduction in advance, the courts have taken a generally conservative stance, which means that, where statutory capital reduction procedures cannot be completed, investors’ claims for court-ordered capital reduction or continued performance of share repurchase obligations are often unsupported by the courts.

In summary, even where a repurchase clause has been triggered, investors may still face the predicament that the target company is unable to repurchase shares due to the failure to complete statutory capital reduction procedures because of difficulties in passing a capital reduction resolution, overcoming creditors’ objections to capital reduction, and obtaining judicial support for compulsory capital reduction or compulsory repurchase claims.

Recommendations for enhancing the enforceability of share repurchases

Prioritising VAM agreements with the target company’s shareholders

Investors may consider prioritising the execution of VAM agreements directly with the target company’s shareholders, designating such shareholders as the repurchase obligors. By doing so, investors can bypass the strict statutory restrictions that govern a company’s repurchase of its own shares under the PRC Company Law, as well as the constraints imposed by the capital maintenance principle. Once the repurchase conditions are triggered, investors may assert creditor claims directly against the shareholders, without the need to complete any capital reduction procedure.

Prioritising commercial arbitration as the dispute resolution mechanism

Unlike court judgments, arbitral practice has, in certain cases, placed greater emphasis on party autonomy. Some arbitral tribunals, when handling disputes involving VAM share repurchases by target companies, have directly ordered the performance of repurchase obligations based on contractual arrangements, without treating the completion of statutory capital reduction procedures as a prerequisite for arbitration. Accordingly, investors may consider designating commercial arbitration as the preferred dispute resolution mechanism in VAM agreements, thereby adopting a more flexible approach to safeguarding their substantive rights and interests.

Requiring additional guarantors

Where a VAM agreement is entered into with the target company, investors may also require other third parties, such as the actual controller or other shareholders, to assume joint and several guarantee obligations for the target company’s repurchase obligations. Where the target company is unable to perform its repurchase obligations due to the failure to complete capital reduction procedures, the investor can directly demand the guarantor to bear the corresponding guarantee liability, thereby mitigating potential losses.

In conclusion, to overcome the practical difficulties arising from a target company’s inability to complete statutory capital reduction procedures and perform share repurchase obligations, investors may consider adopting a combination of strategies, including entering into VAM agreements with the target company’s shareholders as repurchase obligors, prioritising commercial arbitration as the dispute resolution mechanism, and requiring additional guarantors.

减资程序于对赌回购履行的障碍

对赌通常包含投资人与股东的对赌以及与目标公司的对赌。在投资人与目标公司对赌的场景中，目标公司履行股权回购义务时往往以完成《公司法》规定的法定减资程序为前提。本文仅探讨在投资人与目标公司对赌的场景中，减资程序对于目标公司回购股权的障碍，并提出相应建议。

对赌协议的效力及履行前提

不同于投资人与股东之间对赌协议的有效性始终被司法认可，中国司法实践对投资人与目标公司之间对赌协议的效力认定，经历了从否定到肯定的演变。

在号称“对赌第一案”的2012年“海富案”中，最高法确立了“投资人与目标公司对赌无效、与目标公司之股东对赌有效”的观点，主要考量是若投资人因对赌协议而可以取得相对固定的收益，该收益脱离了目标公司的经营业绩，损害目标公司及目标公司债权人的利益。

2019年出台的最高法《全国法院民商事审判工作会议纪要》（“《九民纪要》”）认可了投资人与目标公司之间的对赌协议原则上的有效性，并提出，完成减资程序是目标公司回购股权的前提条件。这一精神在2025年9月《最高人民法院关于适用〈中华人民共和国公司法〉若干问题的解释（征求意见稿）》中亦得以确认并延续。

至此，中国《公司法》的立法精神以及《九民纪要》的司法指引，均认可投资人与目标公司之间对赌协议原则上的有效性，并明确或间接确认完成法定减资程序是目标公司回购股权的前提。

然而，投资人经常面临减资决议难以达成、债权人对减资的异议难以克服、强制减资或回购的诉请难以得到支持等诸多问题，使得法定减资程序成为目标公司回购股权的障碍。

减资程序完成的困境

减资决议难以达成

减资程序的第一步是要形成有效的股东会减资决议。根据《公司法》第66条规定，有限公司股东会作出减资决议须经代表三分之二以上表决权的股东通过。在目标公司回购股权的情形下，该通过比例更为严苛：投资人要求目标公司回购其自身股权，实质上构成仅针对该投资人退出、而其他股东出资额不变的“定向减资”；《公司法》第224条在2023年的修订中，要求这种非同比例的减资取得目标公司全体股东的一致同意。

在实践中，减资决议的三分之二绝对多数表决权已较难达成；在对赌失败、目标公司经营未达预期时，目标公司的其他股东更难以一致同意投资人先行退出，导致减资程序在第一步就陷入僵局。

债权人对减资的异议难以克服

即便减资决议达成，根据《公司法》第224条之规定，目标公司应当将减资事宜通知债权人或进行公告，债权人有权要求目标公司清偿债务或者提供相应的担保。

在对赌失败的情形下，目标公司往往经营状况不佳，难以满足债权人清偿债务或提供相应担保的主张，导致减资程序无法依法完成，或导致目标公司被认定为违法减资，在这种情况下，投资人反而可能被要求退回收到的资金，并对目标公司承担赔偿责任。

强制减资或回购的诉请难以得到支持

在目标公司因股东不愿或其他客观不能的原因而无法完成减资程序时，投资人亦难以寻求法院救济。首先，法院对于投资人请求目标公司减资的诉请一般不予支持，认为尚无法律规定可以强制公司减资且认为减资属于公司内部自治事项；其次，法院对于未完成减资程序而直接要求目标公司回购的诉请亦倾向于不予支持，认为减资是履行回购的先决条件。

尽管部分仲裁案件中仲裁庭会裁决支持目标公司履行回购义务而无需先行减资，但是，在诉讼案件中，当目标公司无法完成减资程序时，因法院的审慎保守，投资人请求法院判决目标公司减资、及请求法院判决目标公司继续履行回购义务的请求往往不会被支持。

保障减资回购可履行的建议

优先选择与目标公司的股东签订对赌协议

投资人可优先选择与目标公司的股东签订对赌协议，由目标公司的股东成为回购义务人，直接绕开《公司法》关于目标公司回购自身股权的严格限制以及资本维持原则的约束，当回购条件触发时，投资人向股东主张债权，便无需以公司减资为前提。

优先选择商事仲裁作为争议解决方式

有别于法院判决，在仲裁实践中，一部分仲裁庭在处理目标公司对赌回购股权类纠纷时，更侧重于当事人意思自治，基于合同约定直接裁决目标公司履行回购义务，而不将减资程序的完成作为裁决的前置条件。因此，投资人可考虑约定仲裁以保障自身权益。

增加保证人

若与目标公司对赌，投资人可以同步要求其他第三人，如实际控制人、其他股东等为目标公司的回购义务承担连带保证责任。若目标公司因未完成减资程序而无法履行回购义务，则投资人可以直接主张保证人承担相应保证责任，以减少投资人损失。