Corporate indemnification and advancement of legal expenses are distinct rights, with advancement being a narrower and more provisional contractual benefit. By relieving corporate officials from the personal financial burden of paying ongoing expenses arising from lawsuits and investigations, advancement is widely recognized as an important corollary to indemnification as an inducement to secure able individuals to corporate service. The decision by a corporation to grant advancement of expenses incurred by an officer or director (and sometimes other employees and agents) in defending civil, criminal, administrative or investigative actions is essentially a decision to advance credit to corporate officials, because amounts advanced to them must be repaid if it is subsequently determined that they are not entitled to be indemnified.
Delaware law does not require corporations to advance legal expenses, but most corporations provide broad and mandatory advancement rights to any covered person who must defend a proceeding for which indemnification ultimately could be available. Corporations routinely include mandatory advancement provisions in the bylaws, but they may also sign individual indemnification agreements with officers and directors that cannot be amended without mutual consent. Where advancement rights are provided in both corporate bylaws and an indemnification agreement, and the scope of the advancement rights provided therein differs, the question arises whether the two agreements should be read together or separately. Delaware Court of Chancery Vice Chancellor Tamika Montgomery-Reeves’ July 5 decision in Narayanan v. Sutherland Global Holdings concluded that different sources of advancement rights need not be considered together; rather, each document conferring advancement rights is a separate and independent source of advancement rights.1
Prior Delaware Case Law
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