Directors’ indemnities

Introduction

Directors are subject to increasing regulatory oversight and may face personal liability in connection with the discharge of their duties.  The Companies (Jersey) Law 1991 (the Companies Law) permits the indemnification of a director against claims and liabilities arising from the director carrying out the director’s duties as a director, but it also imposes limits on the circumstances in which such indemnity may be lawfully given.

The Companies Law was amended on [1 June 2026] (the 1 June amendments) to widen the protection that may be given to present and former directors, secretaries and liquidators (together, officers).  Any person who is or was, or is threatened to be made, a party to any civil, criminal, administrative or investigative proceedings (together, proceedings) because they are or were an officer of the company or any person who is or was acting for another entity at the company’s request, whether as an officer or in any other capacity, may be indemnified.

The general rule

Subject to the limitations set out below, and provided its articles do not state otherwise, a company may indemnify an officer against all expenses, legal fees, judgments, fines and amounts paid in settlement (together, permitted expenses) that are reasonably incurred in connection with any proceedings.

Limitations

A company may only indemnify an officer if the officer acted honestly and in good faith and in what they believed to be in the best interests of the company and, in the case of criminal proceedings, they had no reason to believe their conducts was unlawful.

The fact that proceedings are terminated by any judgment, order, settlement or conviction does not, by itself, create a presumption that the officer did not act honestly, in good faith and with a view to the best interests of the company or had reasonable cause to believe that their conduct was unlawful.

Advance payment of defence costs

A company may pay for the expenses and legal fees that an officer incurs in defending proceedings in advance of their final disposition. Any advance funding: (a) must be conditional on the company receiving an undertaking from the officer, or someone on their behalf, to repay the sums advanced if it is ultimately determined that the officer is not entitled to be indemnified; and (b) may be made subject to any other terms or conditions that the company deems appropriate.

Enforcing indemnification provisions in the articles

If an officer is successful in their defence, at the final disposition of the proceedings the company may indemnify them against all permitted expenses reasonably incurred in connection with the proceedings.

Officers may directly enforce a provision in a company’s articles that indemnifies its officers, subject to the limitations set out above.

A company does not require the consent or approval of its officers to vary or extinguish an indemnity provision in its articles. However, a claim for indemnification already made by an officer is not affected by a subsequent amendment or extinguishment of such a provision.

Insurance

The Companies Law permits a company to purchase and maintain insurance for its present and former officers as well as any person who, at its request, serves or has served as an officer, or in any other capacity, for another body corporate, partnership, joint venture, trust or other enterprise. This applies regardless of whether the company has the power to indemnify the director against the liability.

Insurance is important from the perspective of both the company and the officer because:

• an indemnity from the company may be worthless if the company becomes insolvent;
• the defence costs of an officer may be funded by the insurer under the insurance policy;
• the insurance policy may extend to liabilities for which the company is unable to indemnify the officer (eg damages awarded to the company);
• if a claim is made by the company against the officer that is covered by the insurance policy, the company may make a claim under the policy rather than seeking recourse to the assets of the officer which may be insufficient to meet the claim in full; and
• claiming under the insurance policy may avoid protracted litigation.

Where can indemnities be contained?

An indemnity will normally be contained in the company’s articles of association, a director’s letter of appointment (in the case of a non-executive director) or service agreement (in the case of an executive director, secretary or liquidator) or an indemnity agreement between the officer and the company or third party.

Although a company’s articles of association may set out indemnity provisions, it will be generally preferable for an indemnity to be contained in an officer’s letter of appointment, service agreement or an indemnity agreement. This will allow the scope of the indemnity (including any limitations and exclusions), the procedures for making claims under the indemnity, the terms of the advancement of expenses and the conduct of proceedings brought against the officer to be clearly defined.

Why indemnify officers?

The rationale for the limitations on officers’ indemnities in the Companies Law is that an officer owes fiduciary duties to the company under Jersey customary law and the Companies Law and therefore the officer should be accountable for their actions and the consequences of any breach of their duties.

However, officers (especially directors of companies whose securities are listed on a securities exchange or who carry on business in litigious jurisdictions such as the United States) are increasingly being exposed to the risk of claims being brought against them by third parties (especially class actions). The costs of defending such claims can be considerable, especially where the proceedings are complex and protracted.

In addition, in the absence of a suitable indemnity, potential directors (especially non-executive directors) may consider that the amount of their fees would not justify the risks associated with carrying out their duties as a director of the company. Therefore, the company may be unable to attract directors with the expertise and experience desired by the company unless it agrees to indemnify its directors.

Consequently, in most cases, a company would be justified in indemnifying its directors where:

• the company has a complex business;
• the company has securities listed on a securities exchange;
• the company carries on business in litigious jurisdictions;
• it is common place to do so in the industry in which the company operates, especially where the company operates in an industry that is prone to litigation (eg pharmaceuticals or technology); or
• it is necessary to do so to attract directors with the expertise and experience desired by the company.

Preservation of existing indemnities and exemptions

The 1 June amendments do not affect any exemption or indemnity to which an officer was lawfully entitled in respect of actions or omissions that occurred before 1 June 2026.

Contacts

A full list of contacts specialising in corporate law can be found here.