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One of the central concepts in company law is that a company is a juristic person with a separate legal personality. Several consequences flow from the doctrine of separate legal personality, among other things, that a company owns its property and assets and may sue or be sued in its name. Therefore, shareholders do not have a direct right of action for a company's loss. The company itself should institute such a claim save for certain exceptional circumstances like derivative actions. Both the High Court (court a quo) and the Supreme Court of Appeal in Hlumisa Investment Holdings (RF) Ltd v Kirkinis (the Hlumisa case) confirmed that shareholders cannot claim diminution of share value that is linked to the misconduct of company directors and auditors. This article concurs with the court a quo and the Supreme Court of Appeal's interpretations that as a general rule, directors owe fiduciary duty only to the company and that shareholders cannot rely on a claim for reflective loss in company law. This article assesses the proper plaintiff and reflective loss rules against the backdrop of the Hlumisa case. [ABSTRACT FROM AUTHOR]

One of the central concepts in company law is that a company is a juristic person with a separate legal personality. Several consequences flow from the doctrine of separate legal personality, among other things, that a company owns its property and assets and may sue or be sued in its name. Therefore, shareholders do not have a direct right of action for a company’s loss. The company itself should institute such a claim save for certain exceptional circumstances like derivative actions. Both the High Court (court a quo) and the Supreme Court of Appeal in Hlumisa Investment Holdings (RF) Ltd v Kirkinis (the Hlumisa case) confirmed that shareholders cannot claim diminution of share value that is linked to the misconduct of company directors and auditors. This article concurs with the court a quo and the Supreme Court of Appeal’s interpretations that as a general rule, directors owe fiduciary duty only to the company and that shareholders cannot rely on a claim for reflective loss in company law. This article assesses the proper plaintiff and reflective loss rules against the backdrop of the Hlumisa case.

Over the past 25 years, (minority) shareholders in Czech companies have been continuously seeking remedies for various wrongdoings they perceived to be caused by the failure of the company’s directors to act with due care (and/or as a result of a breach of their statutory duty of loyalty) in order to utilize not only the already well-established derivative lawsuits but also to seek a remedy for the ‘reflective’ loss on their shareholdings which were incurred as a result of the (direct) damage caused to the company by the directors. In the previous era (ending in 2014), however, Czech courts repeatedly denied minority shareholders any right to pursue reflective loss claims. But the corporate world changed in the Czech Republic on 1 January 2014 when the new Czech Civil Code entered into force. The new Czech Civil Code has brought many legal transplants from all around the world as well as re-instituted concepts into Czech law from Czech history which nearly had been forgotten and until now remained largely untested, both in practice and in terms of underlying policy. One of the significant new features brought by the new Civil Code is no doubt the brand new regulation of reflective loss claims, which, despite significant policy considerations justifying the predominant non-reflective loss principle, marks the first time such a general principle has ever expressly appeared in Czech law. Not only has the Czech law—detaching from the non-reflective loss principle—become anomalous, the way reflective loss has been ‘transplanted’ into Czech law is, to a great extent, troublesome. This article tackles the most crucial shortcomings (both in practice and underlying policy) of the new regulation; namely, it addresses the actual content of reflective loss claims under Czech law, the statutory requirements for the shareholders’ right to claim a reflective loss, and the co-existence of the company’s ‘primary’ right to damages and the shareholders’ right to reflective loss compensation. [ABSTRACT FROM AUTHOR]