Meaning
Contractual arrangements allow a company to pay the legal costs or liabilities incurred by a director in certain proceedings. A qualifying third party indemnity provides financial protection for board members facing lawsuits from creditors or regulators. It is subject to strict legal limits to ensure that it does not cover fines or criminal penalties.
The indemnity is a standard part of the compensation package for senior executives in large firms.
Coverage Limit
Policies and contracts specify the maximum amount the company will pay for a single claim. The limit for a qualifying third party indemnity must comply with the provisions of the local companies act. Costs incurred in defending a successful criminal prosecution are almost always excluded from the coverage.
Regulatory Compliance
Legal frameworks require these arrangements to be disclosed in the annual financial reports. Compliance for a qualifying third party indemnity ensures that shareholders are aware of the potential liabilities the company has assumed. Failure to follow these rules can make the indemnity void and unenforceable.
Exclusion Provision
Specific types of misconduct or deliberate breaches of duty are not covered by the agreement. An exclusion for a qualifying third party indemnity typically applies to any action where the director did not act in good faith. Legal reviews of these documents happen annually to ensure they incorporate the latest changes in case law and corporate regulations.
