Corporate Indemnification

Abstract

This article discusses whether a company benefits from the faculty or has the statutory duty to reimburse its directors for losses caused by litigation. In the United States of America this question is stated and intensely regulated in various jurisdictions while in Germany, Italy and Portugal, this issue depends on general rules concerning the distribution of the procedural costs, the mandate, on the waiver and settlement of the right to indemnification by the company. This article argues that corporate indemnification is a business practice shaped from international standards, which have been spread by Side B of the D&O Insurance policies. The mandatory nature of legal rules concerning the civil liability of directors, enforced in Germany Italy and Portugal, does not prevent companies from reimbursing its directors from litigation costs. However, the company may not reimburse litigation expenses caused by breach of duties owed by the directors to the company nor for compensation which the director has been ordered to pay to the company. The mandatory regimes in force in Germany, in Italy and Portugal allow for the waiver and settlement of corporate indemnification but prevent, particularly with regard to stock corporations, limitation and exclusive clauses concerning directors’ liability.