On April 10, the Delaware General Corporation Law was amended to, among other things, provide that rights to indemnification or advancement of expenses set forth in a corporation's charter or bylaws may not be eliminated or impaired by an amendment after the occurrence of the underlying act or omission unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after the occurrence of such act or omission. The amendment, which is effective Aug. 1, is in a new sentence at the end of Section 145(f) of the Delaware General Corporation Law.
The amendment reverses the outcome in Schoon et al. v. Troy Corporation, 948 A.2d 1157 (Del. Ch. 2008), which held that bylaw indemnification and advancement of expenses could be modified or eliminated after the occurrence of the underlying act or omission.
Corporate directors and officers often request or insist on separate indemnification agreements with the corporation to provide protection against inordinate risks of claims and actions against them arising out of their service to, and activities on behalf of, the corporation. These separate indemnification agreements provide non-exclusive protection in addition to any rights to indemnification and advancement of expenses that may be provided by the corporation's charter, bylaws, or directors' and officers' insurance policies. Following the Schoon decision, separate indemnification agreements became increasingly more important as a means to provide indemnification and advancement of expenses to corporate directors and officers without the risk of such protections being modified or eliminated without the consent of the beneficiaries thereunder.
Although separate indemnification agreements may continue to be advisable for other reasons, such as to address co-indemnity and contribution issues between a corporation and its investment-fund sponsor or to provide special rights and benefits to particular indemnitees, the amendment to the Delaware General Corporation Law makes clear that charter and bylaw indemnification and advancement of expenses provisions that were in effect at the time of the underlying act or omission will continue in favor of the corporation's indemnitees.
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