Delaware Decision Highlights Need for Director Protection

This post is from David A. Katz of Wachtell, Lipton, Rosen & Katz. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

My colleague Laura A. McIntosh and I have written an article entitled “Delaware Decision Highlights Need for Director Protection,” which discusses the Delaware Chancery Court case of Schoon v. Troy Corp. The decision, which is on appeal, clarifies that in Delaware, unless otherwise provided in the bylaws or agreed by contract, a director’s right to advancement of expenses does not vest until the company’s obligation is triggered. This result is significant since the advancement of expenses in corporation-related lawsuits, along with broad indemnification, is an important feature of director protection. The decision may leave former directors, in particular, vulnerable to bylaw amendments affecting their right to advancement of expenses. In the article we address some of the many options available to consider to protect a director’s right to advancement of expenses, including the company revising its bylaws, directors entering into indemnification agreements and former directors purchasing D&O liability insurance specifically for themselves in some cases.

The article is available here.

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