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.
--Caroline Blitzer
About the author: Caroline Blitzer is a partner in Vinson & Elkins’ M&A/Private Equity practice group. She can be contacted at cblitzer@velaw.com.
Recommended Reading
1Q24 Dividends Declared in the Week of April 29
2024-05-03 - With earnings season in full swing, upstream and midstream companies are declaring quarterly dividends. Here is a selection of dividends announced in the past week.
Analyst Questions Kimmeridge’s Character, Ben Dell Responds
2024-05-02 - The analyst said that “they don’t seem to be particularly good actors.” Ben Dell, Kimmeridge Energy Partners managing partner, told Hart Energy that “our reputation is unparalleled.”
Tellurian Reports Driftwood LNG Progress Amid Low NatGas Production
2024-05-02 - Tellurian’s Driftwood LNG received an extension through 2029 with authorization from the Federal Energy Regulatory Commission and the U.S. Army Corps of Engineers.
Zeta Energy Appoints Michael Everett as COO
2024-05-02 - Prior to joining Zeta Energy, a lithium-sulfur battery developer, Michael Everett previously served as president and COO at Advanced Battery Concepts.
Shell Launches $3.5 Billion Share Buyback Program
2024-05-02 - Shell, which posted first-quarter adjusted earnings of $7.7 billion, will cancel all of the shares it buys.