Protecting a director from liability

The following Corporate practice note provides comprehensive and up to date legal information covering:

  • Protecting a director from liability
  • General rule against protection from liability
  • Insurance
  • Provision of insurance
  • Reasons for acquiring and maintaining insurance
  • Terms and conditions of the insurance policy
  • Articles of association
  • Indemnities
  • ‘Qualifying’ indemnities
  • Articles of association
  • More...

Protecting a director from liability

A director of a company limited by shares is exposed to a wide range of potential liabilities that could arise as a result of their acts (or omissions) carried out during the course of business of the company under statute, contract or tort.

The Companies Act 2006 (CA 2006) contains a general prohibition against exempting or indemnifying directors against such liabilities (see General rule against protection from liability). However, there are statutory exceptions to the general rule providing that directors can be protected from liability by:

  1. the acquisition and maintenance of insurance by the company for its directors against liabilities (see Insurance)

  2. the company giving qualifying indemnities to its directors against certain liabilities (see Indemnities)

Directors can also be relieved from liability by the shareholders ratifying their acts of misconduct, subject to such conduct being capable of ratification (see Ratification).

General rule against protection from liability

CA 2006, s 232 provides that:

  1. any provision that purports to exempt a director of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company is void

  2. any provision by which the company directly or indirectly provides an indemnity (to any extent) for a director of the company or of an associated company (as defined) against

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