What is a deed of indemnity?

While it is important to have Directors and Officers (D&O) Insurance, it is also wise to ensure that you have signed a Deed of Indemnity. These documents may come in handy to help indemnify you against any liabilities or legal costs that you may incur in your professional capacity as a director of a company. If you are a director of a company and have an existing Deed of Indemnity or you intend to enter into this kind of Deed, it is a good idea to make sure that your Deed is termed widely enough to cover you against a variety of different circumstances. What a Deed of Indemnity covers is unique to every company and so it is wise to know what your particular Deed covers. If you are a director of a number of companies you should not presume that all the Deeds of Indemnity held by all of these companies will be the same. The same rule applies for D&O Insurance which may be unique to each company that it applies to. Sometimes directors will rely upon an indemnity clause within the company constitution to indemnify them against any liabilities. However, it is a better idea to have a separate Deed of Indemnity to rely on. This is because, if you are no longer a director or shareholder in the company, the company constitution may not apply to you anymore. A Deed of Indemnity can be termed to apply to you even as a former director of a company and so it is a good idea to ensure that you have entered into one with your company. Ensuring that you have a Deed of Access is also useful to have so that you can access company documents even after you have left your position as director of the company.

Deeds of Access

A Deed of Access can be created to ensure that you have access to company documents after you have left your position as director of the company. While there is legislation in place that gives directors rights to access information from their former companies, it is a good idea to ensure that you enter into a Deed of Access to specify your rights and your former company’s obligations in relation to this matter. The documents that you can continue to have access to could include the books and records of the company which would be very useful to you if you were required to defend yourself against a claim in the future. Additionally, the Deed can specify that the company will preserve a set of documents for you so that you do not have to maintain a copy of all relevant documents yourself.

Conclusion

It is useful to keep in mind that indemnity that your company can provide you with is only as good as the financial standing of the company. If your company becomes insolvent then it will not be able to afford to indemnify you or the indemnification it can provide will be almost worthless. For this reason, if your company is part of a larger group of companies, you could get another company to ‘guarantee’ your indemnity. The indemnity that a parent company or another company in this group could provide you with could be of a much higher value than what your insolvent company can offer you. If you do not have a thorough understanding of your Deed of Indemnity, you may be required to pay for legal costs and related expenses with your personal assets. Also, if you have left the company that you were formerly a director of, you may also not be able to access company documents that you may require to respond to an action or investigation by a government agency. These are just a few of the risks that you may run if you are not properly covered by your Deed of Indemnity or if you are unaware of the scope of coverage in the Deed. If you would like more information on D&O Insurance, please see article entitled: “What is Directors and Officers (D&O) Insurance?”

For a more in-depth discussion about deeds of indemnity and how they operate, contact LegalVision to speak with a commercial solicitor.