An officer's deed of indemnity is a deed signed by a company that is intended to protect you against claims made by third parties.
Do you need a deed of indemnity?
Strictly speaking, you're not required to have one. But it's a good idea and strongly recommended. They are particularly important where the company is owned by more than one person.
As a director, there are a number of circumstances in which a claim can be brought against you personally. A deed of indemnity is one of a number of measures you can (and should) take to reduce your personal exposure.
What's contained in a deed of indemnity?
A deed of indemnity will typically cover the following:
- Indemnities in favour of the director or officer.
- An agreement to loan money to cover legal costs.
- Rights of access to company information.
- An obligation on the company to obtain insurance.
Are there limits on the protections a company can give?
Yes. The Corporations Act limits the indemnities that can be given by a company to its officers. For example, a company cannot indemnify you for claims made in connection with criminal conduct.
Deeds of indemnities are (or at least should be) prepared so that they do not grant broader protections than are permitted by law. If the deed is not limited in this way, it runs the risk of being void - meaning that the deed may not protect you as intended.
If the protections in the deed go too far, the company may be in breach of the Corporations Act.
Why rights to information are important
A deed of indemnity will usually give you express rights to access company documents and receive company information.
This is important because, without these express rights, you may not have a general right to receive the information, even where it may be useful in assessing and defending a claim.
Where the deed allows you to seek documents, the deed will usually regulate access in a way that is designed to ensure protection of any legal privilege attached to them.
For example, if you seek a document that contains legal advice given to the company, the company will want to ensure that the disclosure of the document to you will not result in it having to disclose the document to third parties.
Do you need a deed of indemnity if you have D&O insurance?
Deeds of indemnity and directors & officers (D&O) insurance are two different things.
D&O insurance will often have limits in terms of the types of claims that are covered and the amount the insurer can be required to pay.
A deed of indemnity can apply where D&O insurance does not. There are cases where a director has been able to gain protection under a deed of indemnity where the company's D&O insurance was not available or had been exhausted. (Here is an example.)
Do you need a deed of indemnity if there are indemnities in the company’s constitution?
A deed of indemnity is also separate to the company's constitution. Once signed, the deed will apply irrespective of what is contained in the constitution.
A constitution might be amended to remove officer indemnities at any point in time. A deed can only be amended with the consent of both parties.
In a practical sense, it may sometimes be more difficult for a director, and particularly a former one, to make a claim under a constitution rather than under a deed of indemnity. This is another reason why a deed of indemnity is recommended.