A Guide to Investing in Trinidad and Tobago (2011) - Ministry of ...

Indemnifying or insuring a director against
personal liability
Provision is made for a company to indemnify directors,
and to obtain insurance for them, but only in circumstances
where they have acted honestly and in
good faith and in the best interests of the company. In
specified situations there are additional requirements
for a director or officer to be indemnified as follows:
• Where his liability arises out of criminal proceedings
or administrative actions that are enforced
by a monetary penalty, he must also have had
reasonable grounds for believing that his conduct
was lawful.
• Where his liability arises out of a “derivative action”,
court approval for the payment of an indemnity
must also be obtained.
Steps directors should take to secure an
indemnity
Generally speaking, the Companies Act merely allows
a company to indemnify a director or officer against
personal liabilities but does not require the company
to do so. For a director or officer to require an indemnity,
there must be some positive obligation imposed
on the company to provide it.
In Canada, it is normal for a company’s by-laws to
provide that it must indemnify directors and officers if
the requirements of the by-laws are met. This practice
should usually be followed when continuing an existing
company under the Companies Act, 1995 and
when incorporating a new company.
A director or officer should never assume the existence
of the appropriate by-law, but should look into it
and ensure that it is as broad as possible. This should
be done as part of accepting an appointment and
when any important change occurs, such as continuation
under the Companies Act. If a director or
officer is not satisfied, he should consider resigning.
Directors and officers should also take the extra step
of getting an express contractual right to an indemnity.
This eliminates technical hurdles about enforcing
the non-contractual by-laws. It also ensures that the
company cannot unilaterally change the right to the
indemnity.
There are provisions in the Act which require a company
to indemnify directors and officers in specified
circumstances, even where there is no by-law or contract
to that effect. This right arises under the Companies
Act where the director or officer is substantially
successful on the merits of the claim and the same
“good faith” requirements are met. This provision reflects
the fact that if substantial success is achieved,
the director or officer should be indemnified.
Advantages of obtaining insurance
Although insurance cover is only available subject to
the same “good faith” requirements that apply to indemnities,
it is advisable that it be obtained. The reason
for this is that an indemnity is of little value if the
company that is to provide it has become insolvent.
Insurance cover is particularly useful because many
instances of director’s liability arise in circumstances
where a company is insolvent. It is also important to
note that the coverage and exclusions under a policy
of insurance must be carefully reviewed, as there may
be restrictions in the policy beyond the “good faith”
requirements imposed by the Companies Act.
Unanimous Shareholders Agreements
A “Unanimous Shareholder Agreement”, commonly
referred to as a USA is an instrument that allows the
powers, duties and liabilities of the directors to be
assumed by the shareholders, either generally, or in
respect of specific acts, or even for a specific time
period. A USA may be used to protect directors from
personal liability in appropriate situations. In this way,
the Companies Act gives statutory recognition to the
fact that accountability should match authority. Thus,
to the extent that the Act allows authority for the company’s
decisions to be transferred from the directors
to the shareholders, it provides for accountability
A Guide to Investing in Trinidad and Tobago (2011) 67