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JOURNAL OF INTERDISCIPLINARY RESEARCH

A REVIEW OF THE REPORT ON RELATIONS BETWEEN THE CONTROLLING AND
CONTROLLED PARTY AND BETWEEN THE CONTROLLED PARTY AND PARTIES
CONTROLLED BY THE SAME CONTROLLING PARTY

MAREK VOCHOZKA,

VOJTĚCH STEHEL,

ZUZANA

ROWLAND,

TOMÁŠ KRULICKÝ

Institute of Techno

logy and Business in České Budějovice,

School of Expertness and Valuation, Okružní 517/10, 37001

České Budějovice, Czech Republic
email:

vochozka@mail.vstecb.cz,

stehel@mail.vstecb.cz,

rowland@mail.vstecb.cz,

krulicky@mail.vstecb.cz

Abstract: The identification of relations between legal entities is not always simple. In
regard to a controlling and controlled party such a situation can arise in which the
controlled party or the third party (a minority owner of the controlled party) suffers
injury by a conduct of the controlling party. The aim of this article is to review the
report on relations between the controlling and controlled party. The content of the
Report on Relations is examined in relation to complying with the legislation under
Act No. 89/2012 Sb. the Civil Code and Business Corporations Act No. 90/1012 Sb.
Real doubts about a correct identification of controlling and controlled parties together
with other slight formal flaws were identified. Neither the infliction of injury on the
controlled party, nor on the minor owner was found.

Keywords: review, the report on relations, legal entities, group of companies,
legislation, the usual price, reasonable consideration.

1 Introduction

The legislation governs legal relations between the controlling
and controlled party – Business Corporations Act No. 90/2012
Sb., and Act No. 89/2012 Sb., the Civil Code in particular.
Provided a review whether these stipulated relations are
observed is asked for, there are several methods that can be
followed.

What is thereby to be dealt with are relations between legal
entities. Act No. 89/2012 refers to legal entities as organized
departments that obtain legal nature awarded by law or whose
legal nature is recognized by law (Bezouška, Piechowiczová,
2013). Vít (2015) states that a legal entity is a legal fiction which
does not actually exist and which can be formed, dissolved or
changed only under the law. Pursuant to S. 118 Act No. 89/2012
Sb., the legal entity obtains its legal nature from its formation to
its dissolution (Czech Republic, 2012a).

The controlling party refers to a party which actually or legally
directly or indirectly decisively influences the administration or
operation of the corporation of the controlled party (Ryneš,
2018). Under S. 74 (1) Act No. 90/2012 Sb. the controlled party
refers to a business corporation that is controlled by a controlling
party (Czech Republic, 2012b). Ryneš (2018) says that if one or
more corporations that are subject to uniform administration are
to be dealt with, these are referred to as a group of companies.

A legal relationship refers to a corporate relationship of more
subjects that have mutual rights and obligations. Legal
relationships are bilateral or multilateral. We distinguish two
legal relationships: relative (correlative relationships on the part
of both – the entitled and the obligated party) and absolute (one
subject has absolute rights or obligations and this right applies to
the obligation of non-specified number of subjects) (Knapp,
1995).

The injury to the controlled party or another involved party may
be caused by the conduct of the controlling party. The injury
may be financial or non-financial. For example, financial injury
may be caused by inadequate financial performance for
contracted services. The controlled corporation then suffers non-
financial injury such as damage to its reputation even in the
event of unintentional fault of the controlling party.

2 Literary research

It is a report on relations that must be annually submitted by all
controlling parties. The report contains information on relations

between the controlling party and controlled party or parties. Its
wording and elements are regulated pursuant to S. 82 Act No.
90/2012 Sb (Czech Republic, 2012b).

Under S. 82 (1) Act No. 90/2012 BCA the report must be
produced within three months after the deadline of the
accounting period. The report of relations is drawn up in order to
inform partners of the group of companies. Under Sec 84 (1) Act
No. 90/2012 Sb. controlled parties are entitled to get acquainted
with the report on relations within same time limit and under
same conditions as they were with the financial statement at the
most recent session of the supreme body (Czech Republic,
2012b). In the event of discrepancies or incompleteness of the
report on relations, the partner whose contributions are not less
than 10% of the registered capital (S. 187 (1) Act No. 90/2012
Sb.) or shareholder whose share is no less than 3% of the
registered capital that exceeds 100 Mil. CZK with a share no less
than 5% of the registered capital that is no less than 100 Mil.
CZK may arrange for the court to review this report; in the event
that the registered capital of the corporation exceeds 500 Mil.
CZK, it is necessary to own no less than 1% of shares (S. 365
Act No. 90/2012 Sb.). Each of these partners may suggest an
expert who will be authorized to review the report on relations.
However, these suggestions are not binding on the court (S. 86
(1) Act No. 90/2012 Sb.) (Czech Republic, 2012b). Reviews of
the report on relations may be carried out only by experts
appointed by court (Hejda et al., 2013). The expert refers to a
person trained and experienced in performing actions that cannot
be performed by an ordinary man without the knowledge that the
expert has acquired (Liern et al., 2015). Experts have
considerable experience and hold opinions and know facts that
must be applied in the assigned task. The task results in the
expert’s opinion (Bolger, 1994).

Leal (2007) considers the expert’s opinion as a reliable source of
information for relevant analytic modelling where no relevant
data are available. The report on relations must contain these
elements: the structure of relations between the controlling and
all controlled parties, the role of the controlling party in the
group, the manner and means of controlling, the overview of
sessions that were summoned by or in the interest of the
controlling or other parties (provided this session discussed
assets exceeding 10% of the equity of the controlled party; that
10% must be recognized from the last financial statement) that
took place within the last accounting period, the overview of
contracts between the controlled party, controlling or controlled
parties and, last but not least, the opinion on whether the
controlled party incurred injury or, alternatively, the opinion on
the compensation for the injury under S. 71 and S. 72 Act No.
90/2012 Sb. (Skálová et al., 2017). However, what was said
above does not apply if it was proved that the expert could have
reasonably and in good faith anticipated that he consciously had
acted in behalf of the influenced party (S. 71 (1) Act No.
90/2012 Sb.) (Czech Republic, 2012b).

Wang et al. (2010) analyzed financial statements of a bankrupt
corporation and used these statements to identify which
circumstances led to its insolvency and whether this insolvency
was caused by arising injury. Badriyah et al. (2018) argues that
in the event of financial distress of the controlled party, which
the party subsequently alleviates by a monetary loan, it is
possible for the controlling party to become its guarantor. In
such a case the controlling party would have an interest that the
controlled party should be able to pay its debts; otherwise, the
controlling party itself would be at risk of insolvency (Klieštik et
al., 2018)

. According to Ficbauer and Řezňáková (2014) the

improvement of the management of financial resources of the
controlling party plays an important role in the relationship
between the controlling and controlled party. They also argue
that in the event of necessity, the controlling party can be a

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