You have enquired about what is involved in establishing “Deeds of Access & Indemnity” for the Company’s Directors, and what additional benefits and/or protection this might afford Directors over the Company’s Constitution, the Corporations Act and common law.
Briefly, the aim of such Deeds is that a contract is entered into (between the
Company and each Director) whereby the Company will:
provide each Director with access, whilst a Director and for 7 years after ceasing to be a Director, to Company board papers, minutes and financial and other records which have been either prepared for and/or provided to him in relation to carrying out his duties as a Director; and
indemnify* each Director in relation to the period of his directorship in respective of certain claims that may be made against him in his capacity as a Director and any liability, cost, damage or expense suffered or incurred by him in the proper discharge of his duties;
pay all of the Director’s reasonable legal costs and outlays of defending or opposing any claim; and
provide a level of Directors’ & Officers’ Insurance cover;
to the extent allowable by law.
Many consider that, notwithstanding anything provided for in the Act, or other laws, it is better for a Director to establish specific contractual obligations on the Company to provide “access” and an “indemnity” by entering int o such Deeds.
These matters are also both provided for in the Act, as follows:
Access
Sec. 198F(1) of the Act provides Directors with a statutory right to inspect the books of the Company for the purposes of a legal proceeding to which the Director is or may be a party.
Sec.290 additionally provides for a Director to inspect the financial records of the Company.
Sec.198F(2) allows similar access to both the books and financial records for 7 years after he ceases to be a Director.
These provisions also, generally, allow the current/former Director to take copies.
Indemnity
A Company cannot exempt a Director (or officer) from any liability to the Company incurred whilst a Director/officer – Sec.199A(1) of the Corporations Act.
Also – under Sec.199A(2) – the Company cannot indemnify a Director (or officer)
against the following liabilities incurred whilst a Director/officer:
- a liability owed to the Company
- liabilities for penalties or compensation orders under the Act
- a liability to another party which did not arise out of conduct in good faith.
A Company may indemnify a Director (or officer) for legal costs, other than any relating to Sec.199A(2) liabilities, criminal proceedings and certain court orders – Sec.199A(3). And a Company can provide a loan to cover legal costs (see also Sec.212).
A Company may also pay premiums for insurance against a Directors (or officers) liability and/or legal costs, except to cover a willful breach of duty and for making improper use or information or position – Sec.199B.
Additionally, most Constitutions have provisions that cover the indemnification of current and former Directors (and other officers) against losses and liabilities incurred whilst a Director (or officer), including liability for negligence and legal costs, to the maximum extent allowed by law. Constitutions usually also allow the Company to take out appropriate insurance cover (“D & O Insurance”).
- to “indemnify” is to make good a loss which one person has suffered in consequence of the act or default of another and an “indemnity” is a collateral contract where the parties agree on the matters, remedies, etc, in relation to the indemnification
*Originally written by Company Secretary, an Australian virtual company secretary service.