Nominee Director Indemnity Agreement: Limits and Questions to Ask

A nominee director indemnity agreement is not a transfer of the legal office or a promise that nothing can reach the director. It may require a named party to reimburse defined liabilities or defence costs, subject to the contract, statute and ability to pay. It cannot remove Companies Act duties, stop a company, liquidator, regulator or prosecutor from acting, or safely promise cover for criminal fines, regulatory penalties, fraud or every insolvency claim. Read the final wording, not a marketing summary, and take it to an independent solicitor before accepting an appointment.

Before relying on it, answer five questions:

1. Who is the exact legal indemnifier, and did it authorise the promise?
2. Which third-party claims, investigations and defence costs are included?
3. Which statutory, conduct, timing and policy exclusions apply?
4. Can the indemnifier actually pay when funding is needed?
5. Does the protection survive resignation for acts during the appointment?

Directors’ and officers’ (D&O) liability insurance is a policy issued by an insurer. An indemnity is a promise by the named indemnifier. Neither replaces the other, and neither removes statutory duties.

What an indemnity does—and does not do

An indemnity is a contractual allocation of financial risk. If a covered event occurs and the conditions are met, the indemnifier may have to pay or reimburse the director. It does not replace the director as the person who owes a duty or faces a claim.

Keep four ideas separate:

1. The underlying liability: who can make the claim against the director?
2. The indemnity: who promises to fund or reimburse it?
3. Insurance: is there a separate insurer and policy?
4. Legal permissibility: does statute or public policy prevent the promised protection?

For example, a third party may sue the director while the director seeks payment under an indemnity. The third party is not normally required to wait for that funding dispute. If the indemnifier refuses or has no money, the underlying process can continue.

A nominee label changes none of this. The official director guidance says director duties apply even where someone is inactive or takes instructions. Read the responsibilities overview before considering how a contract might fund consequences.

The statutory boundary in Companies Act sections 232 to 235

The central rules are in Companies Act 2006, sections 232 to 235. They distinguish an invalid exemption, restricted company indemnities, insurance and qualifying indemnity provisions.

Section 232: an exemption is void

Section 232(1) makes void a provision that purports to exempt a director, to any extent, from liability that would otherwise attach in connection with negligence, default, breach of duty or breach of trust in relation to the company.

Section 232(2) also makes void a provision by which a company directly or indirectly indemnifies its own director, or a director of an associated company, against such liability, except as permitted by:

• section 233, for insurance;
• section 234, for a qualifying third-party indemnity; or
• section 235, for a qualifying pension-scheme indemnity.

Section 232 applies whether the provision appears in the articles, a contract with the company or otherwise. A clause called a waiver, release, hold-harmless term or “full protection” is judged by what it does, not its heading.

Section 233: the company may buy insurance

Section 233 permits a company to purchase and maintain insurance for a director against the liabilities described in section 232(2). This allows D&O insurance to exist; it does not say every policy covers every director, act, investigation or cost.

The policyholder, insured-person definition, period, limit, retention, exclusions, notification and insurer response still matter. A certificate or a statement that insurance exists is not a substitute for the schedule and wording.

Section 234: qualifying third-party indemnity

Section 234 defines a third-party indemnity as protection against liability incurred by the director to someone other than the company or an associated company. It can qualify only within stated limits.

It must not indemnify:

• a criminal fine;
• a regulatory penalty for non-compliance;
• defence costs in criminal proceedings ending in a final conviction;
• defence costs in civil proceedings brought by the company or an associated company ending in a final judgment against the director; or
• costs of a specified application for relief where the court finally refuses relief.

The final-outcome wording matters where costs are advanced, meaning paid before the claim ends. An agreement should address whether money must be repaid if the eventual result falls within an exclusion.

Section 235: a pension-scheme-specific route

Section 235 concerns a director of a company that is trustee of an occupational pension scheme and liability connected with the company’s trustee activities. It has its own exclusions, including criminal fines, regulatory penalties and defence costs following conviction.

This is not a general expansion of nominee director protection. It will usually be irrelevant unless the appointment genuinely falls within that pension-scheme context.

A private indemnifier does not make the limits disappear

An indemnity might be offered by the company, a shareholder, parent company, beneficial owner, customer or service provider. Identify the exact legal entity and its relationship to the company. Section 232 expressly addresses exemptions and indemnities provided directly or indirectly by a company; a solicitor should test the proposed arrangement against that wording and any other applicable rule.

No private document can:

• remove a director’s statutory duty;
• require a public authority to abandon an investigation;
• transfer the director’s criminal responsibility to the indemnifier;
• make a fraudulent or dishonest act lawful;
• erase a personal guarantee to a creditor; or
• prevent an insolvency office-holder from pursuing a valid claim.

Wording that promises “all liability, whatever the cause” should not reassure you. It may be void, excluded, unenforceable or financially worthless in the circumstances where it is most needed.

Identify the parties and protected capacity

The agreement should state:

• the director’s full legal identity;
• the indemnifier’s full legal name, number and address;
• the appointed company and any associated companies;
• whether the document is an agreement or deed;
• the capacity covered, such as director acts during a defined term; and
• who has authority to sign for the indemnifier.

Do not accept a trading name, logo or website as the obligor. Compare the signature block with official company records and board authority. If the indemnifier is outside the UK, ask how service and enforcement would work.

General website terms do not automatically provide an appointment indemnity. The relevant document must identify the actual parties and role.

Define claims and exclusions precisely

Ask what “claim”, “loss” and “defence costs” include. Possible items may include third-party damages, reasonable legal fees, investigation representation, settlements or appeal costs, but only the wording decides.

Check whether the agreement excludes or limits:

• conduct before the stated start date;
• conduct after termination;
• deliberate fraud, dishonesty or knowing violation;
• personal profit or advantage;
• liability under a personal guarantee;
• tax, employment or data-protection matters;
• connected-party disputes;
• claims known before signing;
• acts outside authority; or
• failure to follow notification and co-operation terms.

Do not negotiate exclusions by asking for unlawful protection. The objective is to understand the boundary and reject any appointment whose safety depends on being reimbursed for deception or deliberate wrongdoing.

Check which document prevails

The appointment agreement, indemnity deed, articles, board approval and D&O policy may use different definitions or impose conflicting duties. Ask the solicitor to identify any order-of-precedence clause, entire-agreement term, amendment formalities and inconsistency. An email promise from an intermediary may have no effect against the final signed wording. Keep the executed version and every later valid amendment; do not rely on a draft or an unsigned “summary of cover”.

Defence costs need a working process

An agreement that says “legal costs are covered” leaves critical questions unanswered:

• Does the indemnifier pay costs as they arise or only reimburse at the end?
• Who selects and instructs the solicitor?
• Is independent representation permitted where interests conflict?
• Who controls admissions, defence strategy, settlement and appeal?
• Must the director obtain consent before incurring costs?
• What happens if urgent advice is needed before consent?
• Is there a cap, excess or reasonableness test?
• When must advanced costs be repaid?

Control of the defence can create a conflict. The indemnifier may want a quick settlement or a common solicitor, while the director needs separate advice. The document should not allow funding pressure to force a false admission or prevent compliance with a regulator or office-holder.

Notification clauses can decide whether cover responds

Check what triggers notice: a demand, threat, investigation, circumstance likely to lead to a claim, or formal proceedings. Identify the deadline, required content and recipient. A notice sent to the person who arranged the role may not be valid notice to the indemnifier or insurer.

The agreement should address late notice, continuing updates, preservation of privilege, document handling and co-operation. Never destroy records or withhold information from an authority to satisfy a private funding arrangement.

Financial substance matters as much as wording

An indemnity is an unsecured promise unless the structure provides something more. Ask for evidence that the indemnifier exists and has authority and financial capacity appropriate to the promise. Consider with an adviser:

• audited or current financial information;
• whether the obligation has a monetary cap;
• security, escrow or a parent guarantee, if offered;
• priority if the indemnifier becomes insolvent;
• currency and payment mechanics;
• dispute and enforcement costs; and
• the governing law and forum.

None of these features guarantees payment. A solvent-looking company can deteriorate, and an asset statement may not be available to meet your claim. Do not accept a high-risk role merely because the paper indemnity has a large headline limit.

Four insurance terms to define

• Defence costs are the legal and related costs of responding to a claim or investigation; check whether they reduce the policy limit.
• Excess or retention is the amount that must be borne before cover responds, and the documents should say who pays it.
• Claims-made cover generally responds according to when a claim or circumstance is notified under the policy in force, not simply when the underlying act occurred.
• Run-off cover is post-appointment insurance for claims made later about acts during the covered period; its duration and limits must be stated.

These are general descriptions, not a finding that any policy uses or covers them. The schedule and full wording control.

Coordinate the indemnity with D&O insurance

Ask for the policy schedule and full wording, not only a certificate. Confirm:

• that you fall within “insured person”;
• which company and appointment are covered;
• the policy period and retroactive or prior-acts position;
• the aggregate and per-claim limits;
• defence costs inside or outside the limit;
• retention or excess;
• fraud, dishonesty, insured-versus-insured and prior-knowledge exclusions;
• notification requirements;
• allocation where some allegations are covered and others are not; and
• run-off after resignation or a change of control.

The indemnity should explain whether company or shareholder funding applies before or after insurance and who bears an excess or excluded amount. Double recovery should not be assumed, and one document should not silently defeat the notice conditions in another.

Check duration, termination and survival

Claims often arrive after the appointment ends. The document should state:

• the effective date;
• whether earlier acts are covered;
• how termination works;
• whether protection survives for acts during office;
• how long claims or circumstances may be notified;
• whether defence costs continue after termination;
• access to company records and information; and
• what happens after merger, sale, dissolution or insolvency.

Resignation does not erase the underlying conduct. Follow the director-resignation guide for the separate office-ending process. A clause ending all protection on the resignation date can leave a substantial gap. Conversely, a survival clause still depends on legality, wording and the indemnifier’s ability to pay.

Before resigning, confirm in writing which indemnity and insurance terms survive, for how long, who must notify a claim, and where the final policy and appointment records will be kept.

Insolvency claims need particular caution

Company debt and personal liability are different. The personal-liability guide explains the possible routes, while the company insolvency guide separates Great Britain wrongful-trading law from Northern Ireland’s provision.

Do not assume an indemnity will respond if the company itself is insolvent, particularly where the company is the indemnifier. An office-holder may also challenge transactions or pursue claims that the agreement cannot block. If the indemnifier is a connected person, conflicts and recovery risk need close review.

Two illustrative comparisons

A document capable of review: it names a financially evidenced indemnifier, identifies the company and appointment, tracks sections 232 to 235, defines third-party claims and defence costs, states lawful exclusions, provides independent representation for conflicts, coordinates D&O cover and survives for acts during office. It is not guaranteed protection; it is a complete document for legal analysis.

A document to reject as reassurance: a one-page letter from an undefined “owner” says the nominee has no responsibility and will be covered for all civil, criminal, regulatory and fraud consequences. It gives no notice process, limit, defence mechanism, financial evidence or survival. Its promises conflict with core legal boundaries and should not support acceptance.

Questions for an independent solicitor

Take the final documents and ask:

1. Who legally provides the indemnity, and is the signing authority valid?
2. Does section 232 make any term void?
3. Does the wording meet section 234 where it claims to be a qualifying third-party indemnity?
4. Is section 235 relevant at all?
5. Which liabilities and defence costs are included and excluded?
6. Can costs be advanced, and when must they be repaid?
7. Who controls counsel, defence, settlement and appeal?
8. How do the indemnity and D&O policy interact?
9. What survives resignation, insolvency or change of control?
10. Where and against what assets could the promise be enforced?

Your next step

Do not sign a nominee director appointment because a summary says “indemnity included”. Obtain the final indemnity, appointment agreement and D&O documents, verify every party and take the complete package to an independent company-law or disputes solicitor. If the appointment only appears acceptable when unlawful, criminal or dishonest conduct is assumed to be covered, decline it.