Recent decisions of the Delaware courts raise important issues for directors of Delaware corporations concerning their indemnification rights.[1]

In Schoon v. Troy Corp., the court upheld amendments to the bylaws of a corporation that retroactively stripped a former director of his right to receive advancement of expenses in cases filed after the former director left the board.

In Levy v. HLI Operating Co., Inc., the court denied indemnification to certain former directors because they received separate indemnification payments from an investment fund – which they represented on the board of directors – and there was no contractual provision addressing the relative priority of the indemnification obligations of the corporation and the investment fund.

For Delaware corporations and their directors, these decisions highlight the importance of making clear in the relevant indemnification provisions:

*When a director’s indemnification rights become vested and may not be changed without the director’s consent;

*The status of indemnification rights as contractual rights that may be enforced by a director;

*The priority of the corporation’s indemnification obligations in relation to other indemnitors.

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