Australia: Deeds of Access, Insurance and Indemnity for company directors

WHO SHOULD READ THIS

  • Company directors, executive officers and in-house counsel.

THINGS YOU NEED TO KNOW

  • Deeds of Access, Insurance and Indemnity are an important element of protection for directors and officers against personal liability;
  • The company constitution and an indemnity can provide a high level of protection against personal liability; and
  • A policy of D&O insurance is essential to provide protection for liability arising after the director ceases to hold office.

WHAT YOU NEED TO DO

  • If directors and officers do not have a Deed of Access, Insurance and Indemnity in effect, then they should seek to secure one.

In Part 1 of this focus series, we touched on how companies usually protect their directors and officers from personal liability through the company constitution or a formal deed of indemnity.

In this final article, we take a closer look at deeds of indemnity and why directors and senior officers should have them and how they work together with D&O insurance policies.

What is a Deed of Access, Insurance and Indemnity?

A Deed of Access, Insurance and Indemnity is an agreement between the company and a director or company officer.  As the name suggests it provides:

  • access to company documents which the company must maintain and the D&O insurance policy;
  • an indemnity for the directors and officers to the extent permitted by law; and
  • the benefit of D&O insurance that the company must arrange on their behalf and pay for the premium.

Why have one?

There is no single means by which a company director or officer can gain protection from all personal liability arising from company related activities.  A Deed of Access, Insurance and Indemnity is one of the key means by which directors and officers can manage their personal risk and liability.

Directors may also be entitled to an indemnity pursuant to the terms of the company constitution.  However, this alone may not offer sufficient protection because it will usually not be binding once a person ceases to be a director or if the company constitution is changed.

Access to documents

When faced with a claim against them in their personal capacity, a director will most likely require access to company records in order to defend the claim.   The Corporations Act 2001 (Cth) permits current directors to access company books (other than financial records) but only for the purposes of a legal proceeding to which the person is a party, proposes to bring or believes will be brought against them.  Former directors have the same right for a period of seven years after they cease to be a director.

Entering into a deed can broaden and regulate access to documents by stipulating:

  • that the company must maintain specific books and records for a nominated period;
  • the classes of documents which the director can have access to and the permitted purposes for which access will be granted.  This might include board papers and minutes, documents mentioned in them and legal opinions necessary to defend claims;
  • a framework for access to any privileged documents in a way which ensures that the company's privilege is protected; and
  • the period of time access is permitted.  This may be unlimited but should be for at least seven years after the directors ceases to hold office.

Indemnity

A company is permitted to indemnify its directors against liabilities that they incur while acting in that capacity, including for legal costs.  However, there are limits on the extent to which a company can indemnify a director.  The Corporations Act prohibits indemnifying a director against liabilities:

  • owed to the company itself or a related entity;
  • for certain pecuniary penalties or compensation orders; and
  • owed to someone other than the company that did not arise out of conduct in good faith.

There are also limits on the extent to which a company may indemnify a director for legal costs incurred in the defence of proceedings.  These include proceedings:

  • where the director is found to have a liability for which they are not permitted to be indemnified;
  • involving criminal charges for which the director has been found guilty;
  • brought by ASIC or a liquidator for a court order if the grounds for making the order are established; and
  • for relief under the Corporations Act where the Court denies relief.

Despite these restrictions, it is permissible for a company to agree to advance payment of legal costs to defend an action against a director up to the point where any adverse finding is made in the proceedings that would prohibit the indemnification.  If such a finding is made, the director will be required to repay the costs.

A company is also permitted to pay the premium for a policy of D&O insurance, provided that it does not cover liability arising out of conduct involving a wilful breach of duty or misuse of their position or information gained in their capacity as a director.  Ordinarily, a D&O insurance policy will exclude cover for such events meaning that these restrictions will not affect the ability of the company to obtain cover for the directors.

D&O Insurance

Although an indemnity from a company can provide financial protection to a director, it will be of no use in the event of corporate insolvency.  Further, a company may not automatically agree to indemnify a director in the event of a claim.  For these reasons, D&O insurance is also essential financial protection for directors.

The Deed of Access, Insurance and Indemnity should deal with the following issues pertaining to D&O insurance:

  • The period of time for which cover must be maintained.  Ideally, this should be for at least seven years after the director ceases to hold office;
  • The amount and terms of cover.  These should reflect the size and complexity of the company operations and the industry in which it operates;
  • The right of the director to access a copy of the policy terms and conditions.  Self evidently, the director should have access to the policy documents; and
  • The company will pay the premium for the policy.

For more information about the cover afforded by a D&O insurance policy, see Part 1 of this Focus Series here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions