Why you need a Deed of Indemnity, Insurance & Access
1 August 2019
A Deed of Indemnity, Insurance & Access is an important legal document which provides company directors and officers with protection against personal risk and liability.
What is a Deed of Indemnity, Insurance & Access?
As the name suggests, a Deed of Indemnity, Insurance & Access provides directors and other company officers with:
an indemnity, to the maximum extent permitted by law, against a liability incurred by them in carrying out their duties on behalf of the company;
the benefit of D&O insurance that the company must put in place (at the company’s cost); and
access to company documents which the company is required to maintain.
Why is it Important?
Company directors and officers have exposure to personal risk and liability arising from company related activities. A Deed of Indemnity, Insurance & Access is one of the key ways directors and officers can manage their personal risk and liability by providing them with certain rights even after they cease to hold office.
Directors and officers may be entitled to an indemnity under the company’s constitution. However, this does not always provide adequate protection because the indemnity will usually cease once the director or officer ceases to hold office.
A Deed of Indemnity, Insurance & Access can extend the indemnity against liabilities (including legal costs) arising from company related activities, with the exception of certain prescribed liabilities and liabilities in respect of prohibited conduct. For example, liabilities owed to the company itself or a related entity, and liabilities owed to someone other than the company that did not arise out of conduct in good faith.
Although an indemnity from a company can provide financial protection to a director or officer, the indemnity will be worthless to them if the company becomes insolvent. Further, a company may not automatically agree to indemnify in the event of a claim. For these reasons, D&O insurance is also essential financial protection for directors and officers.
A Deed of Indemnity, Insurance & Access should deal with the following issues pertaining to D&O insurance:
the period of time for which cover must be maintained (ideally at least 7 years after the director or officer ceases to hold office);
the amount and terms of cover (commensurate with the size and complexity of the company’s operations and the industry in which it operates);
the right of access to a copy of the policy terms and conditions; and
the company’s obligation to pay the premium for the policy.
Access to Company Documents
When faced with a claim, a company director or officer will usually require access to company books and records in order to defend the claim. The Corporations Act 2001 (Cth) permits current directors and officers to access company books (other than financial records) but only for the purposes of legal proceedings they are party to, or propose to bring, or believe will be brought against them. Former directors and officers have the same right for a period of 7 years after they hold office.
A Deed of Indemnity, Insurance & Access can broaden and regulate access to company documents by stipulating:
that the company must maintain specific books and records for a specified period;
the classes of documents which the director or officer 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 7 years after the director or officer ceases to hold office.
A well drafted Deed of Indemnity, Insurance & Access should provide company directors and officers with peace of mind by managing their exposure to personal risk and liability from company related activities. In today’s litigious world, it is one of the best risk management tools available for directors and officers of both private and public companies.
Are you a company director or officer concerned about your exposure to personal risk and liability? Get in touch and let us help you put in place the protections you need.