The statutory right to advancement of directors and officers of a Delaware corporation under Section 145(e) of the Delaware General Corporation Law ("DGCL") should not be confused with indemnification rights under Sections 145(a) and (b). Unlike advancement, which can be obtained pre-judgment, indemnification rights are determined post-judgment following the outcome of litigation.
Accordingly, the right to advancement is generally broader than the right to eventual indemnification, given that indemnification requires a finding in favor of the director or officer subject to the litigation.
This was demonstrated in the recent case of Holley v. Nipro Diagnostics, C.A. No. 9679-VCP, 2014 WL 7336411 (Del. Ch. Dec. 23, 2014). In Holley, the Court of Chancery rejected Nipro's argument that Holley was not entitled to advancement because he necessarily would not be entitled to indemnification and "advancement is only permissible in cases 'in which indemnification theoretically could be available.'" To the contrary, the court stressed that "advancement and indemnification 'are separate and distinct legal actions'" and "'the right to advancement is not dependent on the right to indemnification.'" As a result, the court reasoned that "Nipro's position that advancement necessarily is limited to situations that could qualify for indemnification appears to be wrong as a matter of law."
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.
