Statutory Indemnification of Officers and Directors
Michael C. Rakower and Melissa Yang write that in New York, directors and officers sued for actions or inactions taken in connection with their corporate post have another avenue to seek relief from litigation costs if their corporation denies them indemnification: Courts have authority to award an advancement of litigation expenses or indemnification to directors and officers of for-profit and not-for-profit corporations.
October 23, 2015 at 10:34 PM
12 minute read
In New York, directors and officers sued for actions or inactions taken in connection with their corporate post have another avenue to seek relief from litigation costs if their corporation denies them indemnification. Pursuant to the Business Corporation Law (BCL) and the Not-For-Profit Corporation Law (N-PCL), courts have authority to award an advancement of litigation expenses or indemnification to directors and officers of for-profit and not-for-profit corporations (collectively, “corporations”).1 The court's authority extends not just to instances in which third parties sue directors and officers, but also to those situations where the corporation itself has brought suit.
This article focuses on the standard for directors and officers to obtain an advancement of fees and indemnification under the BCL or N-PCL and provides practical insights for corporations interested in affecting the scope of the court's authority to award such an advancement.2
Pendente Lite
Under BCL §724(c) or N-PCL §724(c), directors and officers may obtain a court-ordered advancement from their employer to finance their defense costs. In particular, the statute provides:
Where indemnification is sought by judicial action, the court may allow a person such reasonable expenses, including attorneys' fees, during the pendency of the litigation as are necessary in connection with his defense therein, if the court shall find that the defendant has by his pleadings or during the course of the litigation raised genuine issues of fact or law.
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