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Articles : Directors Beware: It Could Happen to You!

Directors Beware: It Could Happen to You!

By: Ira R. Halperin

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By Ira R. Halperin

A recent decision of Delaware Chancery Court (the “Court”) has left many corporations and directors wondering whether their current bylaws are sufficient and clear enough to address certain indemnification and advancement issues. Generally, directors are protected to a great extent under a corporation’s bylaws, especially with regard to indemnification. Section 145 of the Delaware General Corporation Law (the “DGCL”) grants corporations vast power to indemnify directors, officers, employees and others against threatened, pending or completed legal actions; provided that the person being indemnified acted in good faith and in a manner reasonably believed by the person to be in the best interests of the corporation. Additionally, Section 145 of the DGCL allows corporations to advance payment of expenses to directors in defense of legal actions so long as the directors agree to repay the advancement if it is ultimately determined that they are not entitled to indemnification. Typically, corporations draft their bylaws to provide advancement rights to both current and former directors. It was this particular fact that led to the issues and important ruling in Schoon v. Troy Corp. (“Schoon”)…