Meaning
Separate contracts shield officers from the financial costs of litigation arising from their corporate duties. A director indemnity deed provides a direct right of reimbursement from the company for legal fees and damages incurred while acting on behalf of the firm. While the company’s articles often contain general protection, this specific deed creates a personal right that remains valid even after the director leaves the board.
Liability Shift
The economic burden of a legal defense moves from the individual to the corporate balance sheet. A director indemnity deed usually covers all costs except those resulting from fraud or intentional criminal acts.
Scope Limitation
Certain types of legal action are excluded to prevent the deed from encouraging illegal behavior. The director indemnity deed does not apply if the individual is sued by the company itself for a breach of fiduciary duty. It also typically excludes fines imposed by regulators for personal misconduct.
Legal Expense
Legal costs are covered from the moment a claim is threatened rather than waiting for a final court judgment. Most agreements require the company to advance the costs of the legal defense to the individual. If the director is eventually found to have acted in bad faith, the director indemnity deed requires them to repay all the advanced funds to the company.
