Taking on a role of director of a corporation brings with it a lot of responsibilities and risks. Ensuring you have an adequate Deed of Access & Indemnity with the company will help protect you as a director.
A Deed of Access and Indemnity is a contract between the director and the company, which in simple terms, aims to protect a director from being liable for legal costs or liabilities that may be incurred during their time as director.
Why Do You Need One?
Directors are subject to numerous duties and responsibilities under the Corporations Act 2001 (Cth) (the Act). If there is a breach of a duty by a director, there is the possibility that they may be fined by the Australian Securities and Investment Commission, or may be liable to pay damages in court proceedings.
In certain circumstances a director can be personally liable for debts of the company, which means they will have to repay these debts out of their own pocket. An example is where the company has incurred debts whilst being insolvent.
A Deed of Access and Indemnity aims to reduce the risks involved with becoming a director at a company, as you may be indemnified from having to pay any of these costs.
What is Usually Covered?
- Access to Documents
Under the Act, directors have the right to access documents and records of the company, including;
- Board papers;
- Financial statements;
- Any legal opinions which were provided to the board during the time the person was director.
Having access to these documents might assist you in the event of a claim that is brought against you.
- Indemnity Against Legal Costs and Liabilities
Indemnity means that the company will be responsible to pay for any debts or costs incurred as a result of you being a director of the company.
From the perspective of the director, you should seek to have this indemnity as broad as possible, such as indemnity against ‘all claims or omissions to the maximum extent permitted by law’. This would provide protection from all debts and costs for an unlimited period of time.
Despite this, the company may wish to restrict the extent of this indemnity, by imposing a time limit on the protection.
Furthermore, not every event will be covered, as the law prohibits a company from paying in certain circumstances. For example, when the director has engaged in dishonest, fraudulent or criminal behaviour.
- Directors and Officers Insurance
Directors and Officers Insurance provides another level of protection for a director, thus ensuring that this form of insurance is included in the deed can be beneficial.
This form of insurance provides additional protection in circumstances where the company:
- Decides not to indemnify a director; or
- The law prohibits the company from indemnifying; or
- Is incapable of indemnifying – for example the company is insolvent.
This insurance should be obtained by the company from an insurance provider, with the extent of the protection depending on the specific insurance policy.
Under the Act, there are also certain circumstances outlined in sections 199A or 199B, where the company cannot indemnify you, such as any when liabilities are owed directly to the company.
It is common that a director will be liable to be sued for up to six years after the date they leave the company. Hence, it is recommended to include a term in your deed that ensures protection for at least seven years once you finish as a director.
To Sum Up
A Deed of Access and Indemnity can be a key tool in ensuring you are adequately protected as a director of a company.
These agreements are complex and thus you should always speak with a legal professional on a matter before signing any agreement.
Please feel free to contact one of our commercial lawyers if you need any assistance! Just contact us at 1300 337 997 or fill in the contact form on this page.