You’ve just set up your own company and registered your board of directors with ASIC, trademarked your logo with IP Australia, and even purchased public liability insurance to protect your company. Then you realise – what about my company directors? How do I protect them from any legal liability? A Deed of Indemnity is a document that can definitely assist you and your company directors.
If you think your company could benefit from a deed of indemnity, LawPath recommends contacting a commercial lawyer for advice on how you can use one to protect your directors.
What is a Deed of Indemnity?
A Deed of Indemnity is a legal agreement between a company and a company director or company officer which contains the terms of how a company will indemnify, or cover for, the legal costs and liability incurred by a director or officer while performing their role.
Why write a Deed of Indemnity?
Under the Corporations Act 2001, a director is subject to many duties and obligations, such as the duty to avoid conflicts of interest and the duty to prevent the company from trading if it is insolvent. If a director breaches one of their duties, this can result in legal action, with high legal costs and potential fines. A director is personally liable if they are found to be in breach, and the company is not the one responsible for the costs incurred. With a Deed of Indemnity, a company can pay for these costs for the director, up to the scope determined in the agreement.
Additionally, although there may be a specific indemnity clause in the company constitution, this may not apply to a director or officer that has left the company. Therefore the constitution would not apply to that person. A Deed of Indemnity can clarify a lot of misconceptions about liability and even apply to a previous director.
A Deed of Indemnity is a great way to protect your directors from paying costs out of their own pocket, and works as a good incentive for directors and officers to work at your company.
What should I include in a Deed of Indemnity?
You should detail to what extent your company is willing to cover for the liability and legal costs of a director or officer when they are carrying out their role. Many Deeds of Indemnity specify that a company will protect a director or officer “to the maximum extent permitted by law”, but this can be tailored for your company, depending on your needs.
There are some categories that cannot be covered by a Deed of Indemnity. These are the categories that the law prohibits the company from paying for, such as:
- Liability for fraudulent, dishonest or criminal behaviour;
- Liability for certain compensation and penalty orders; and
- Liability to the company.
2) Directors’ and Officers’ Insurance
Directors’ and Officers’ Insurance work as another form of protection for the director or officer, and can provide additional protection for the above prohibited fields, amongst other situations. The Deed should cover the scope and terms of the insurance, and cover who is obliged to maintain the insurance.
3) Access to Documents
Directors have a right to access company documents to assist their case if they are taken to court, and Deeds of Indemnity can provide either a broader or narrower access to a range of documents, depending on the company’s needs.
If you require a Deed of Indemnity to indemnify your company’s directors or officers, with LawPath you can create your Deed of Access, Insurance and Indemnity. If you need more help, LawPath recommends getting in touch with a commercial lawyer for more tailored service for your company’s needs.
Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.