Country Guide to Corporate Indemnification

Albanian company laws do not regulate nor do they make any provision for indemnification of directors and officers against civil or criminal claims or administrative/regulatory actions brought against them because of their corporate capacity. If such an action is brought against a director/officer for acts or omissions carried out while acting in his/her capacity as director or officer, the company can indemnify him/her for his/her defense costs and awards of compensation in respect of legal liability, without having to refer to or take into account any particular laws or regulations for this purpose. In addition, note that there are no legal stipulations prohibiting indemnification in cases of gross negligence or wilful misconduct or similar conduct of the director/officer.

However, indemnification of directors is possible in cases where it is stipulated in the articles of association of the company or in special related policies of the company. If the situation arises, decision-making or management bodies, within the powers conferred to them by the company’s articles of association, policies, etc., could indemnify the directors/officers for the costs incurred (legal costs, damages settlement, etc.) provided that such powers are prescribed in the articles of association, policies, etc.

If no such provisions are set forth in advance in the articles of association, policies, etc., the indemnification could be performed on the basis of a resolution of the relevant decision-making body of the company.
In addition, indemnities may also be agreed in a contract of employment or other type of contract entered between the company and the directors and/or officers.

Contributor: Kalo & Associates

Austrian Law distinguishes between indemnification of defense costs and the indemnification of damages and/or fines, penalties.

Austrian case law is rather strict when it comes to the assumption of penalties. The threat of fines in criminal and administrative law usually has a preventative effect. In order not to undermine the preventive effect, a contractual assumption of fines in advance - i.e. before the offence is committed - is deemed immoral and therefore inadmissible and void according to the Austrian Supreme Court. Whether the assumption of fines by the company retrospectively - i.e. after the offence has been committed - is permissible depends on the individual case. However, a blanket and generalised assumption of fines by the company is not permissible. The assessment of admissibility must be examined by the responsible body on the basis of company law criteria. In any case, there must be a justification for the assumption of the pecuniary disadvantage.

Besides that, a company may indemnify a director or officer for his/her defense costs. Such agreement can also be made in advance (e.g. in the management board contract). If a company assumes defense costs, it is of course also necessary that the defense costs are in predominant interest of the company.

Contributor: BLS Rechtsanwälte GmbH

There are several possibilities under Belgian law for a company to protect its directors and officers against liability claims from third parties and to reimburse the defense costs.

It should firstly be noted that, since the introduction of the new Belgian Code on Companies and Associations in 2019, it is no longer possible for a company (as well as its subsidiaries or controlled entities) to exonerate or guarantee to indemnify in advance its directors or officers for potential future liability towards the company itself or third parties. Consequently, a “guarantee clause” in the contract between the company and its directors/officers or in the articles of association of the company, whereby the company guarantees to indemnify the directors and officers for any third party claims resulting from professional mistakes and to pay for the defense costs, is invalid under Belgian law.

Although the company itself (or its subsidiaries or controlled entities) is no longer allowed to exonerate or guarantee to indemnify its directors and officers in advance for any third party claims, it is still possible for an entity, other than the company (or its subsidiaries or controlled entities), such as a parent company or major shareholder which has appointed the director, to give such guarantee in advance, including for defense costs.

Furthermore, the aforementioned provision only relates to exoneration or the guarantee for indemnification in advance. Nothing prevents a company under Belgian law from giving such guarantee or from agreeing to indemnify the directors and officers, after a claim was made against a director. In such respect, it is important that the decision of the company to indemnify the directors and officers is carefully considered in light of the corporate purpose of the company.

Another option is for the company to take out a D&O insurance policy. Such policy will cover the directors’ and officers’ civil liability resulting from professional errors and defence costs. Article 146 of the Belgian 4 April 2014 Insurance Act also obliges liability insurers (including also D&O insurers) to pay for the defense costs in relation to civil court proceedings. The policy may also stipulate that defense costs in case of criminal proceedings, will also be covered. If this happens, it is usually with a sublimit. Belgian D&O Policies tend to be underwritten on the basis of a combined loss occurrence-claims made principle with a mandatory sunset cover by law of 36 months, extended in practise in most of the policy conditions to a period of 60 months in order to be aligned with the statute of limitations of D&O claims under Belgian law. Criminal liability as such cannot be covered by insurance, as that is considered to be against public policy.

Contributor: Lydian

According to the current legislation in the Republic of Bulgaria, when actions are taken - whether by a state regulatory authority or a civil claim from a third party that has suffered damages as a result of the actions of the company - then the consequences of imposing a sanction (fine) and/or a court decision ordering the company to pay compensation to the injured third party, can also lead to the person representing the company (i.e the director or officer) being held liable. In such cases, there is no legal obligation on the company to compensate or indemnify the director/officer the amounts that this person has been ordered to pay to the injured third party. It is important to note that such action is permissible, with the exception of compensating the director/officer for fines imposed on them in their capacity as representatives/employees of the company; i.e., the company can indemnify sums awarded under court decisions/settlements and other amounts they have been ordered to pay to the injured third party, but they cannot indemnify fines imposed by a competent supervisory/regulatory authority. This prohibition is explicitly established in a special provision of the Insurance Code, which does not allow insurance coverage specifically for fines/sanctions - Article 420, paragraph 3 of the IC: "Insurance against obligations to pay a fine, confiscation, or any other property sanction under criminal or administrative penalty provisions is not permitted."

Contributor: Zahariev & Metodiev Law Firm

The general rule is that a Cyprus company cannot exempt its directors or other officers from or indemnify them against any liability which attaches to them under the law in respect of any negligence, default, breach of duty or breach of trust by them in relation to the company, and any provision to that effect, whether in the company’s articles, a contract or otherwise, is of no legal effect.

The law allows a Cyprus company to indemnify a director or officer only against any liability incurred by him/her (including legal costs) in:

(a) successfully defending any civil or criminal proceedings;

(b) successfully applying to court for relief from liability on the basis that under the circumstances it is fair for him / her to be excused from liability (e.g. on the basis that he/she acted honestly and reasonably).

Contributor: Costas P. Demetriades LLC

Since the last response to this question, a new Act No. 418/2011 Coll., regulating the criminal liability of legal entities, has been enacted. Under this legislation, if a director or officer acts in their corporate capacity, the company is primarily directly liable. However, the director or officer may also be prosecuted if certain conditions are met. While the law does not explicitly provide for the reimbursement of a director’s or officer’s costs related to criminal proceedings or administrative/regulatory investigations, it does not prohibit such reimbursement from being contractually agreed, provided the company’s internal rules are observed. A more common approach is to secure Directors and Officers (D&O) insurance to cover such expenses.

With regard to civil liability for damage caused to third parties, the company is primarily liable. A director or officer acting in their corporate capacity may only be held directly liable in cases of a conflict of interest or if their misconduct results in the company’s bankruptcy. Consequently, the costs associated with third-party claims are generally borne by the company. The company may seek to recover these costs from the director or officer if they have breached their duty of care. A director’s or officer’s liability cannot be excluded by contract, and the company may only waive its right to seek compensation if this is approved by a strict two-thirds majority of all shareholders. In proceedings where the company seeks to recover costs from the director or officer, the director’s or officer’s legal expenses are typically covered by D&O insurance.

Contributor: JŠK, advokátní kancelář, s.r.o.

When it comes to the responsibility of the company directors, Estonian law does not prohibit the waiver of claims against directors or the limitation of their liability. The possibility of discharge depends on whether the company itself and/or a third party has a claim against the director. Estonia does not differentiate between private limited companies and stock corporations. Under Estonian law, the shareholders may grant indemnification. In case a claim is filed by a third party, it is important to note that a director’s liability towards third persons is very rare, and as such the indemnification against creditors is not very often raised. It must be noted that such release from liability does not limit the rights of shareholders as well as creditors to pursue claims against the director, as the case may be.

The company and director may agree in advance to preclude or restrict liability in the case of non-performance of an obligation. The law additionally states that agreements under which liability is precluded or restricted in the case of intentional non-performance or which allow the director to perform an obligation in a manner materially different from that which could be reasonably expected by the company or which unreasonably exclude or restrict liability in some other manner are void. Estonian law also establishes limitations on indemnity agreements and does not allow such agreements in the case of intent.

A management board member of a private limited company might also be entitled to claim indemnification if an issue has been decided at the shareholders’ meeting and the director has later followed the decision or in cases where a supervisory board has the legal right to permit a director to act contrary to general provisions of the law (e.g. by release from the confidentiality obligation or prohibition on competition).

Contributor: Sorainen

Under the Finnish Limited Liability Companies Act, there are no specific limitations on indemnifying a company’s directors or officers for defence costs, damages, judgments, or settlements. However, according to recent case law, the employer’s payment of legal costs and other defence expenses might confer a financial benefit upon the employee, which was deemed a salary. In response to the recent case law, the Finnish Tax Authority is revising its guidelines on the taxation of indemnification provided by a company to a director, officer, or employee.

The management of the company has a statutory duty to diligently promote the company’s interests and to generate profits for its shareholders. Accordingly, if a company resolves to indemnify its director’s or officer’s legal expenses, such a decision must be justifiable from a corporate law perspective. The resolution to indemnify the company’s management for defence costs, damages, judgments, or settlements must be connected to its operations and serve its interests. If this is not the case, those responsible for the resolution may be held liable for damages.

It is common in Finland for companies to take out separate insurance policies to cover directors’, officers’ and other employees’ liability, among others to mitigate the tax consequences associated with covering employees’ legal costs. Larger companies, both listed and non-listed, typically procure D&O insurance, but insurance is becoming more common in smaller companies. Such policies generally cover defence costs as well as damages, judgments and settlements. Generally, the company pays the insurance premiums. Increasingly management indemnification is provided through D&O insurance taken out by the company. The scope of D&O insurance coverage depends on the specific terms of the policy. The Board of Directors make the decision to obtain D&O insurance.

The information provided above pertains solely to Finnish limited liability companies, which are the primary corporate form in Finland and does not extend to other entity types. Additionally, the above does not address Finnish tax or insolvency law implications. Furthermore, indemnity undertakings and other liabilities assumed by a company for the benefit of its directors must be disclosed in the notes to the annual accounts.

Contributor: Nordia

1. Defense costs in criminal proceedings cannot be indemnified by a French company. In civil proceedings, the company is entitled to indemnify the director and officer (D&O) for his/her defence costs where the proceedings relate to a wrongful act committed in the performance of his/her functions (i.e. where the D&Os have acted in the name and on behalf the company and have thus engaged the company exclusively with regard to the third party).

2. A company may indemnify their directors against their civil liability to pay damages, judgments and settlements, but not against any criminal liability. The company should not indemnify the D&O where they are personally responsible e.g. where the director has misappropriated funds or where they have acted outside his/her capacity as director or officer. The framework is strict: the D&O must personally pay criminal fines and penalties and, if he has acted outside his powers, he/she is personally liable to pay civil damages.

The decision to indemnify is taken by the board of directors and under its responsibility. Where the director has received funds including an indemnity, the funds must be recovered if the D&O acted wrongfully outside his capacity. If they are not receovered, the management board could be prosecuted for misappropriaton of funds. Prior to indemnification, it's advisable to conclude an agreement between the company and the D&O respecting the rules above. The legality of voting and signing a letter of comfort in certain companies, where it is possible, for the benefit of the D&O who has to pay for acts for which he is personally responsible is disputed.

Contributor: DAC Beachcroft

In principle, the company may indemnify its directors and officers against liability to third parties providing their action does not constitute a breach of their director duties to the company, and against liability incurred in civil and criminal proceedings where judgment is awarded in their favour. This will include indemnification of their defence costs. Although a company may even be obliged to do so under certain circumstances, indemnification or reimbursement promises made in advance are null and void.

The indemnfication/payment of fines and monetary sanctions does not constitute a criminal offence of obstruction of justice or criminal facilitation. Senior managers deciding whether to indemnify the director must exercise caution because indemnification carries a risk of criminal liability for embezzlement. The decisive factor here is whether the director's conduct and behaviour, which is the subject of an administrative/regulatory investigation or civil or criminal claims, also constitutes a breach of duty to the company. Where there is a breach of duty to the company, indemnification is only possible under special conditions. Criminal liability for embezzlement may arise if the indemnification is not in the best interests of the company and the indemnification does not bring any future benefit to the company. A final decision to indemnify should only be taken after sufficient factual investigation and legal assessment. For this reason, payments made in advance should only be made subject to the reservation of reclaim if a breach of duty of the director towards the company actually becomes apparent.

Special features apply to indemnification in the case of corporations. Particular caution must be exercised in the case of indemnifying shareholders, as such payments may be considered a prohibited restitution of contributions. Further special requirements may apply to the German public limited companies (‘Aktiengesellschaft’), such as the obligation to obtain the approval of the Annual General Meeting.

Contributor: BLD

Under Greek law, it is not possible for criminal fines or penalties imposed on a company director or officer to be covered by insurance. It is considered contrary to public policy to insure criminal behaviour resulting in criminal convictions. This prohibition, however, does not extend to the respective defence costs, which can be insured by agreement under the D&O policy.

Administrative fines are different in nature; these are not imposed by a criminal court (or a court in general), but by a public authority, for violations that are not criminal and without determination of intentional or grossly negligent behaviour. It is not, therefore, considered contrary to public policy for administrative fines to be covered by a D&O policy (by agreement), since the purpose of administrative fines is different to criminal fines. Associated defence costs can also be insured by agreement under the D&O policy.

Where an act or omission results in a criminal conviction and the imposition of both an administrative fine and a criminal fine, the D&O policy cannot indemnify the administrative fine. This prohibition does not extend to the respective defence costs.

Greek law does not impose civil penalties; in that sense, the scope of a D&O policy is limited to civil claims.

As a general rule, according to para. 5 art. 7 of Law 2496/1997, the insurer is not obliged to indemnify claims arising from an intentional act or omission or due to the insured's gross negligence (including connected persons and third parties entrusted professionally to safeguard the insured interest). Gross negligence exists where the behaviour significantly or unusually deviates from the behaviour of a prudent person. The notion of gross negligence is vague and therefore it is for the Greek courts to ultimately decide whether the facts in a specific case constitute gross negligence or not.

Contributor: Rokas

In Guernsey law, a company is not permitted to indemnify its directors and officers in the Articles of Incorporation against any liability attaching to him in connection with any negligence, default, breach of duty or breach of trust (section 157 of the Companies (Guernsey) Law, 2008 ("Companies Law"). However this does not prevent the director from purchasing insurance to cover such liabilities (section 158).

In addition, under section 159, it is permissible in certain circumstances for directors to obtain indemnities from the company in relation to acts which give rise to a liability to third parties (i.e. not the company in question or associated companies). In order for that indemnity to be engaged, the liability in question must not be criminal or regulatory in nature. The indemnity also will not extend to defence costs in relation to criminal proceedings where the directors are convicted. It will however be engaged for liability and defence costs incurred in civil proceedings brought by third parties. However, if the directors apply to the Court under section 522 of the Companies Law for relief from liability on the basis that they acted reasonably, these costs will only be indemnified if the application is granted.

In summary therefore, in Guernsey directors may not be indemnified by the company against actions brought by the company against them, but they can obtain indemnities against civil actions brought by third parties, such indemnity to include their defence costs as well as the substantive damages claim. The exact scope of the indemnity will depend on the wording of it in the Articles or other contractual document, but it is usual to see the indemnity for costs and expenses worded so as to limit them to costs "reasonably" or "properly incurred". Again, depending on the wording of the indemnity, it is expected that the company's liability under the indemnity would extend to any settlement sums concluded through ADR as well as damages determined by the Court, given that directors have a duty to mitigate the company's loss.

Contributor: Ogier

The principal rule of the Hungarian corporate law (with certain exceptions) is that the company is responsible for damages caused by the actions and ommissions of its directors in their capacity to third parties. Administrative fines may be imposed by relevant authorties also directly against directors and officers. Criminal law liabilty is principally attached to the person committing the crime.

The Hungarian Civil Code does not expressly regulate the question whether the company can indemnify a director/officer for his/her defense costs and/or damages, judgments and settlements. However, the deed of foundation/articles of association may contain provisions for the company’s board of directors (supreme body) to evaluate annually the work of the directors/officers in the previous financial year, and to decide whether to grant any discharge of liability to certain directors/officers. Granting a discharge of liability constitutes the supreme body’s verification that the directors/officers in question have performed their work during the period under review by giving priority to the interests of the company. The discharge of liability shall be revoked if a subsequent court ruling establishes that the information on which the discharge of liability was granted was false or insufficient.

Contributor: WTS Legal Attorneys Association

In Ireland, while there is no blanket prohibition on a company indemnifying its director or officer for their defence costs and/or damages arising from civil, criminal or regulatory proceedings, s.235 of the Companies Act 2014 restricts companies from agreeing to indemnify a director or officer in certain circumstances.

Subject to certain exceptions, section 235(1) provides that any provisions contained within a company's constitution, any contract or otherwise which purport to exempt or indemnify an officer for ""any liability...which would attach to him or her in respect of any negligence, default, breach of duty, or breach of trust of which he or she may be guilty..."" will be considered void.

It is likely that an Irish Court will interpret ""any liability…which would attach to him or her"" as to include damages awarded against the director or officer and defence costs.

Unlike the UK, the Irish Companies Act 2014 does not contain any specific carve out in respect of provisions obliging a company to indemnify an officer in relatio to third party liability. However, section 235 contains two exceptions and a company may agree to indemnify a director where:

• An officer successfully defends themselves in civil or criminal proceedings; or
• The Court grants relief to the officer under sections 233 or 234 of the Companies Act 2014 for actual or anticipated claims on the basis that the officer acted honestly and reasonably and ought to be fairly excused from the wrongdoing, despite appearing liable for the wrongful acts.

It is worth noting that section 235(4) and (5) provides that companies are permitted to purchase and maintain insurance for their officers against such liabilities. Therefore directors and officers may still be protected where companies have purchased a directors and officers policy of insurance. If one of the exceptions apply, a company may wish to advance payments to the director or officer and then seek reimbursement for any losses under their insurance policy.

Contributor: DAC Beachcroft

Italian law does not expressly regulate indemnification duties of the company towards its directors/officers.

According to the case law of the Italian Supreme Court, s. 1720 of the Italian Civil Code must be applied by analogy, according to which the principal must reimburse his agent against the damages he has incurred by reason of his undertaking.

In light of this, the Supreme Court set the principle that a company must indemnify their directors / officers against the losses they incur as a consequence of their role and that are strictly connected to the fulfillment of their duties towards the company, such as, for example, the defense costs incurred in civil proceedings brought for activities performed during their office, provided that directors have not breached any of their duties (it is instead rejected – although amid strong dissenting opinions by scholars – that the same principle applies to the defence costs incurred in criminal trials).

It has also been affirmed that such principle can be contracted out by the parties and that the parties are entitled to predetermine / cap the amount of the reimbursable expenses to the directors. Also, the company is entitled to take upon indemnification duties towards its directors broader than those set by s. 1720 of the Italian Civil Code, with the only limit that undertaking such duties is in line and pursues the company's interests.

Indirect indemnification towards directors may also come from the company's resolution to waive its right to:

(i) bring a liability action against its directors/ officers, even if in the event the damages have been caused by the director with malice or gross negligence. The company cannot however resolve to waive such right in respect to future / undetermined breach of duties by the directors. Also, such waiver is limited to the liability action that can be brought by the company and does not prevent that liability actions may be brought by other parties, such as, for example, the company's creditors;

(ii) bring a recourse action against its directors/officers in case of joint and several liability for the payment of administrative fines. The company cannot instead automatically step-in the payment of administrative fines imposed on its directors.

Contributor: DAC Beachcroft

In Latvia, the law does not explicitly regulate arrangements whereby a company undertakes to indemnify its directors or officers for civil or criminal claims or administrative/regulatory investigations being brought against them in their corporate capacity, and therefore, in principle, this should be possible. Generally, the terms of such arrangements would be subject to the particular agreement reached by the respective parties and can include defense costs, damages, judgments and settlements. In practice this is usually done in the form of directors and officers liability insurance which is taken out by the company for the benefit of its directors or officers.

A specific legal issue which should, however, be taken into account with respect to company directors (but not officers) relates to the duty of due care, skill and loyalty which the directors owe to a company by the operation of law simply by being directors of a company. Although Latvian corporate law and practice is relatively new with few existing precedents in this regard, which makes the task of providing interpretation very difficult, we are of the opinion that the duty of due care, skill and loyalty prohibits the director from entering into transactions which are not in the interests of the company and this might be interpreted to include also arrangements whereby a company undertakes to indemnify its directors for civil or criminal claims or administrative/regulatory investigations being brought against them in their corporate capacity. The failure to comply with this prohibition could make the directors liable against the company for the losses caused to the company by such indemnification arrangements. To reduce the risk of liability, the indemnification arrangements should be ratified in the company’s shareholders meeting.

Contributor: Sorainen

There is no prohibition under Lithuanian law for a company to indemnify its directors or officers for their defense costs and damages, judgments, and settlements.

Contributor: Sorainen

Maltese law does not prohibit Maltese companies from indemnifying its officers, however, there are certain limitations:

(a) Article 148(1) of the Companies Act (Cap. 386, laws of Malta) provides that any exclusion of liability or indemnity by a company in favour of its officers for “any liability which by virtue of any rule of law would in the absence thereof have been attached to him in respect of negligence, default or breach of duty or otherwise of which he may be guilty in relation to the company” (the “Excluded Matters”) shall be void. Counsel recommends that this article and the Excluded Matters be interpreted cautiously and as also including claims by any interested third party (e.g., shareholders, creditors, or regulators) for breaches of duty;

(b) The proviso to Article 148(1) of the Companies Act provides that a company may indemnify an officer for defence costs, however, if it relates to the Excluded Matters, such indemnity may only be given if judgement is given in his favour or in which he is acquitted; and

(c) The Maltese courts would also generally not enforce an exclusion of liability or indemnity for fraud or gross negligence (dolo) and this on grounds of public policy.

Article 148(2) of the Companies Act expressly clarifies that the restrictions around Excluded Matters and defence costs do not prevent or restrict a company or the relevant officer or auditor from purchasing and maintaining insurance against any such liability. It is, however, generally advisable to expressly include the ability to indemnify officers in the company’s Articles of Association (the model Articles of Association in the Companies Act include a limited indemnity clause), including that it may take out D&O insurance cover.

Contributor: Ganado Advocates

According to Macedonian law, there are no direct provisions regulating the indemnification for a director or officer in their corporate capacity by the company itself.

1. Defense Costs
There is no legal obstacle for the company to cover defense costs in the criminal proceedings or expenses arising during administrative or regulatory proceedings, except for costs that, according to Macedonian law, are borne by the director or officer as a party in the proceedings. This particularly applies to imposed fines or sanctions in criminal proceedings, where the fine must be paid by the party found guilty in the court ruling, considering the purpose of punishment and the principle of prevention. However, in practice, fines are often paid by the company, and the court only tracks whether the fine has been paid in the correct amount.

2. Damages, Judgments, and Settlements
For compensation regarding damages, judgments, and settlements for which the director or officer is liable, specific rules apply under Macedonian law. If the director or officer has an employment contract, Macedonian law provides that the employer is vicariously liable for damages caused by the director or office to a third party in the course of their employment. The employer, i.e. the company, will be liable for compensation unless damages were caused intentionally. Additionally, the company is liable for damages caused by its authorized body in the performance of its duties. In such cases, the company has a legal obligation to compensate for damages for which director or officer is liable in their official capacity.

When a judgment establishes an obligation for the payment of damages or another obligation of the director or officer in their official capacity, they must fulfill it personally; however, there are no legal obstacles for the company to pay the damages.

In other situations, the Company Law does not contain explicit provisions prohibiting the company from compensating the director or officer for costs, damages, judgments, or settlements. However, the requirements for obtaining approval for a transaction with an interested party should be implemented by the competent body (e.g. the shareholder's assembly, board of directors or supervisory board, depending on the respective case). This rule does not apply if the company has a single shareholder who is also the director of the company.

Contributor: Karanovic & Partners

1. There are no statutory laws in Norway prohibiting the company from indemnifying the director/officer. If the company has a D&O insurance, this may cover the costs. The company must consider whether the indemnification of a director/officer will be in the company's best interests (i.e. whether it is a good use of corporate money and/or in terms of public relations). Further, if a director/officer is convicted of a criminal charge, the company may also have a claim against the director/officer. A further issues is that the indemnification may be considered 'salary' or 'income receipt' for the director and thereforeis subject to tax for accounting purposes. Indemnification decisions must be made at the general meeting.

2. Similar, as above

Contributor: Nordia

These rules are complex and differ from one area to the next. Here is a breakdown:

Civil liability

There is no legal provision prohibiting a company from indemnifying management board members against liability as long as it is not against the company’s interest. If this is not the case, individuals granting the indemnification could expose themselves to the liability for actions contrary to the company’s interest.

Additionally, the indemnification for damages incurred by the company requires shareholders’ approval. Even if such approval is granted, every shareholder retains the right to pursue, on the company’s behalf, claims against the management board members in the future.

Criminal and administrative liability

A company cannot indemnify management board members against criminal and administrative liability. This is due to the personal and individual nature of such liability, which, as a rule, may not be transferred to another entity.

Defence costs

There is no legal provision prohibiting a company from indemnifying a director/officer for defence costs related to the civil/criminal/administrative proceedings, as long as this is not against the company’s interest. If this is not the case, individuals granting the indemnification could expose themselves to liability for actions contrary to the company’s interest.

Market practice

In practice, companies do not usually indemnify their directors/officers for defence costs/damages/judgments and settlement. However, it is common practice in Poland for companies to cover the costs of D&O insurance for their directors/officers.

Contributor: Tomczykowski Tomczykowska

The Serbian Company Law and court practice do not specifically address indemnification arrangements between a company and its directors or officers. Consequently, the validity of such indemnification arrangements, particularly in relation to fines, under Serbian law is highly questionable, as it could be argued that such arrangements may violate public order. These arrangements may undermine the punitive nature of fines, which serve not only a retributive function but also a preventive one. Furthermore, it could be argued that these arrangements might inadvertently encourage criminal conduct by providing financial protection for the individual involved.

With respect to indemnification for defense costs, civil damages, settlements, or judgments, there are no explicit statutory restrictions preventing such arrangements, provided that they are duly approved by the relevant corporate body. This applies specifically to civil matters, and does not extend to indemnification for fines, which remains highly questionable under Serbian law.

If the indemnification amount amounts to or exceeds 10% of the book value of the company's total assets shown in the last annual balance sheet, the rules on approving transactions with personal interest should be adhered to. In determining whether the indemnification amount amounts to or exceeds the 10% threshold, related transactions with the director over the past year should be considered. Related transactions are those that involve multiple individual transactions intended to achieve the same goal or purpose, or those that are connected by the nature of the legal transaction itself.

Regardless of the indemnification amount, if the arrangement involves a director who is also the statutory representative, proxy by employment, or procurist of the company, it is mandatory to obtain special authorization from the shareholders' assembly. However, the company’s Memorandum of Association may allow for deviations from this requirement (e.g., by explicitly waiving the need for special authorization in specific cases or delegating this authority to another corporate body, such as the board of directors). In such instances, approval from the relevant corporate body is required.

The requirement for special authorization and the rules on approving transactions with personal interests do not apply if the director is both the sole authorized representative and sole shareholder of the company.

Contributor: Karanovic&Partners

Slovak Commercial Code does not prohibit a company indemnifying its director acting as the statutory body of the company (in Slovak: "konateľ") for his/her (i) defence costs, (ii) damages, (iii) judgments or (iv) settlements, if a civil, administrative or criminal proceeding is bought against the director.

While a company is generally allowed to indemnify the director, the particular manner and conditions of indemnification will depend on the particular situation (type, cause, subject matter, position of claimant or outcome of the proceedings in question), as well as on the company itself.

In this regard, the following restrictions / rules should be considered:

• A director shall always be responsible for acting with professional care and in line with the interests of the company. This responsibility cannot be limited in any way. If a director causes damage to the company by breaching this obligation, he/she shall compensate the company for the damage caused.
• A director may generally escape liability for damage caused to the company where he/she caused the damage when complying with a resolution of a general meeting of shareholders.
• A company is only allowed to waive its right against its director for compensation for damage, if 3 years has lapsed following when the damage occurred and the waiver is approved by a general meeting of the company (shareholders).

In practice, an indemnification of the director will almost certainly cause damage to the company by a reduction in the company’s assets. Also, since the indemnity will generally be de facto granted by the director personally in his/her own favour as he/she is the authorized signatory of the company, the indemnification will always be open to challenge in terms of whether it was made in the interests of the company (instead of the director in question). Therefore, it is advisable that any such an indemnification is always approved by the general meeting so the director can rely on this resolution. Without approval, it may be difficult to prove that the indemnification was granted in line with the interest of the company, resulting in the director being obliged to compensate the company and the company would only have limited options to waive this compensation.

Contributor: PRK Partners s. r. o.

Slovenian regulations do not prohibit a company from reimbursing a manager or officer, in their corporate capacity, for defense costs, paid damages, or monetary fines. However, certain restrictions and conditions must be considered, as such indemnification may be treated as employment-related compensation.

A member of the management board of a joint-stock company or the director of a limited liability company does not determine their own compensation or enter into transactions with the company. This authority lies with the supervisory board. If a supervisory board is not legally required and has not been established, the authority rests with the shareholders' meeting. In a publicly traded joint-stock company, supervisory board members are further restricted by the remuneration policy adopted by the shareholders' meeting, which must provide for the possibility of such indemnification.

Given the restriction that a company can only waive a claim for damages arising from a director's breach of the duty of care three years after the claim arises, caution is necessary when granting indemnifications. This risk is generally mitigated if the indemnification is covered by an insurance policy taken out by the company for the benefit of the director. In such cases, the law requires that the insurance policy include a deductible of at least 10% and no more than 1.5 times the fixed annual remuneration of the insured director.

In cases where the director is also the company’s owner, care must be taken to ensure that the indemnification does not affect the company’s protected capital or constitute a concealed profit distribution. Under Slovenian law, such distributions can be considered a minor offense and, in some cases, may escalate into tax evasion, which is a criminal offense. This risk is generally avoided if the indemnification is covered by an insurance policy taken out by the company.

The tax implications are also significant. If the company provides the indemnification, the entire amount will be treated as taxable income (benefit) and subject to personal income tax at progressive rates ranging from 16% to 50%, along with mandatory social security contributions of approximately 22.10%. However, if the indemnification is provided through an insurance policy purchased by the company, then—regardless of whether an insured event occurs—income tax will be assessed on a base equal to 1% of the employment income received from the employer in the relevant month. If the employee does not receive regular monthly income from employment with the employer, the taxable benefit for each month of insurance participation will be 1% of the employment income received in that month but no less than 2% of the most recently published average annual salary in Slovenia, adjusted to a monthly amount, based on data from the Statistical Office of the Republic of Slovenia.

Contributor: Jadek & Pensa

III. INDEMNIFICATION RIGHTS

Spanish law does not regulate indemnification of directors. Thus, indemnification is not expressly allowed nor forbidden.

In the absence of specific regulation, Section 28 of the Companies Act provides that the articles of association of companies may include any agreement which is not contrary to the Act nor to the legal principles which shape the limited companies.

On this general basis, some legal studies are of the opinion that indemnification agreements are not legal since they would amount to an exemption of liability for directors beyond that permitted in the Companies Act, they would render the regulation of liability of directors (which is of a mandatory nature) void, or would be detrimental to companies and for the exclusive benefit of directors.

Some other legal studies conclude that indemnification, however, is legal. To this end, they rely on an analogical application of section 1893 of the Spanish Civil Code, which in respect of the so called “negotiorum gestio” (management of third party business), establishes the obligation to indemnify to the manager the necessary and useful expenses incurred and the prejudices cased in the performance of the task.

On this grounds, it is argued that indemnities and defence costs could or even should be legally indemnified by companies where the defendant directors have not breached any of their duties, and provided the claimant is not the company itself. In case the defendant directors had breached their duties, there is more debate but some studies still conclude that indemnification would be legal with few exceptions, i.e. save in certain cases. For instance, companies should not indemnify where the damage has been caused to the company itself; or where the director concerned carried out a wrongful act in breach of fiduciary or loyalty duties to the company, or where a criminal offence or dishonest act has been committed.

Contributor: DAC Beachcroft

1. In Sweden, there are no statutory provisions prohibiting a company from indemnifying its directors or officers. However, if the company has Directors & Officers (D&O) insurance, such a policy may cover the associated costs. It should be noted, however, that compensation for damages is typically not granted in cases where a crime has been committed.
   
   As an additional consideration, the company must assess whether indemnification aligns with its best interests, taking into account financial implications and potential public relations concerns. Furthermore, if a director or officer is convicted of a criminal offense or similar misconduct, the company itself may have grounds to pursue a claim against the individual in question. It is also important to consider that indemnification may, from a tax perspective, be regarded as remuneration and must therefore be handled accordingly in the company’s accounting records. Additionally, certain indemnification decisions require approval by the general meeting.
   
   Lastly, it is worth noting the possibility of a discharge from liability. However, such a discharge is typically granted in advance and in a general manner, covering potential claims the company may have against its directors or officers, rather than being issued in response to a specific claim.
2. Same as above

Contributor: Nordia

Under Swiss law, it is important to distinguish between the indemnification of directors and officers (D&O Indemnification) provided by the company for which the directors and officers work (Company) itself and that provided by its shareholders:

1. D&O Indemnification Provided by the Company:
   The legal permissibility of D&O Indemnification provided by the Company itself remains uncertain in Switzerland due to the lack of relevant statutory law and judicial precedents. However, legal doctrine argues that D&O indemnification for intentional and grossly negligent breaches of fiduciary duties is prohibited because it would circumvent the statutory liability framework. Thus, D&O Indemnification for minor negligence may be permissible. In practice, Companies may be required to provide D&O Indemnification (e.g. due to foreign stock exchange laws and regulations and/or market expectations). If the Company’s board of directors decides to provide D&O Indemnification to its directors, such D&O Indemnification will most likely not be valid due to a conflict of interest of the directors involved. Therefore, it is advisable and common that the Company’s articles of association, which are subject to the approval of the shareholders, provide for the Company’s right to grant D&O Indemnification. In addition, the articles of association and any D&O Indemnification agreement must expressly state that D&O Indemnification is provided only to the extent permitted under applicable law (resulting in, at best, limited indemnification only in cases of minor negligence). It is common practice and legally permissible that the Company takes out a D&O insurance policy and pays the insurance premium. In addition, the Company may also advance defence costs, subject to a right of reimbursement if the court finds that the director or officer has violated his or her duties intentionally or through (gross) negligence. Finally, the agreement to cover administrative or criminal fines of a director or officer is not legally valid.
2. D&O Indemnification Provided by the Company’s Shareholder(s):
   Shareholders are permitted to provide D&O Indemnification, which is a common practice in corporate groups. Typically, fiduciary directors will insist on such D&O indemnification. D&O Indemnification provided by the Company’s shareholders does not relieve directors and officers from complying with their duties and do not alter the legal liability framework. The D&O Indemnification provided by the Company’s shareholders may include: (i) reimbursement of defence costs, (ii) indemnification against claims by the Company and/or third parties, and (iii) a covenant not to sue in the event of a breach of a director’s or officer’s duties, such covenant typically being limited to breaches occurring at the direction of the shareholder. The agreement to indemnify a director or officer against administrative or criminal fines is not legally valid and not enforceable.

Contributor: MLL Legal

A company may indemnify directors and officers for defense costs, damages, judgments, and settlements. Indemnification for damage caused intentionally by a director or officer is contrary to public policy and therefore void. Furthermore, it appears that the indemnity will not be valid if, in the matter concerned, the director or officer acted beyond the applicable liability standard towards the company.

Contributor: Ekelmans Advocaten

Under Turkish law, there is no explicit provision preventing a company from indemnifying its directors and officers (D&Os) for certain liabilities, particularly those arising from their corporate duties. Companies may agree to indemnify their directors and officers for liability incurred in their capacity. However, some limitations exist regarding the extent to which indemnification can be provided.

The Turkish Commercial Code (TCC) No. 6102 governs the duties and liabilities of company D&Os. According to Article 553, D&Os are liable for damage caused to the company, shareholders, or creditors if they act in violation of the law or the company’s articles of association due to their fault. In cases where D&Os’ fault directly result in losses to the company, indemnification by the company could be considered contrary to the purpose of this provision.

Additionally, if a director or officer is also an employee of the company, employment law principles apply. Under Article 25 of the Turkish Labor Law, deliberate misconduct or gross negligence by an employee (including a director with an employment contract) constitutes just cause for termination. In such cases, it would not be expected for a company to indemnify the losses unless the employment contract explicitly states otherwise (i.e. providing indemnification regardless of the degree of negligence).

Contributor: Gun & Partners

It is usually the case that a company’s articles of association will provide that a director may be indemnified in civil proceedings brought by a third party against the claim itself and the legal costs of defending the proceedings. Indeed, Article 52 of the model articles of association for a private company limited by shares provides for such indemnification of the claim and legal costs. However, s 232(1) of the Companies Act (CA) 2006 restricts indemnification of directors for any liability in connection with negligence, default, breach of duty or breach of trust in relation to the company (i.e. a claim by the company against the director). Section 232(2) CA 2006 stipulates such provisions that are permitted as exceptions to these restrictions. Claims placed outside the scope of company indemnity provisions through these restrictions place the director at increased risk of exposure to claims requiring personal asset contributions.

Further, Article 53 of the model articles, and s 233 CA 2006, provide that the directors may decide to purchase and maintain insurance, at the expense of the company, for the benefit of any relevant director in respect of any relevant loss (including costs relating to claims and regulatory investigations and defending claims) which stem from such liabilities as in s 232(1) CA 2006. For criminal proceedings, s 234(3) CA 2006 provides that any qualifying third party indemnity provisions as in s 232(2) CA 2006 must not provide indemnity for any liability of the director to pay a fine imposed by criminal proceedings, or any liability incurred by the director in defending criminal proceedings in which he is convicted. The Financial Conduct Authority (FCA) expressly prohibits the insurance of any FCA imposed financial penalties and fines, and fines imposed for criminal or quasi-criminal conduct by other UK regulators are also generally considered uninsurable under English law; this is for public policy reasons since insurance would undermine the deterrent effect of such fines.

In regards to public companies, Articles 85 & 86 of the model articles of association provide the same provisions as those in Articles 52 & 53 of the model articles of association for a private company limited by shares.

Contributor: DAC Beachcroft