When Delaware Companies Are Required to Advance Fees

Just four days earlier, the court issued two other opinions in advancement of fees cases which also emphasized that the language of a company's advancement of fees provision is essential to defining when a company has to advance fees. The first case held that a company cannot withhold advancement of fees to its former directors under a broadly worded advancement of fees provision, just because the former directors refused to accept settlement proposals in the underlying securities litigation. The second case held that where the company was only obligated to provide advancement of fees for the defense or other defensive disposition of actual or threatened proceedings, the company had no obligation to advance fees to a former board member who had filed a lawsuit against the company following his removal for cause from the board.

Delaware General Corporation Law Section 145 gives a Delaware corporation the power to indemnify and provide advancement of attorneys' fees to its officers, directors, employees or agents. While the advancement authority in Section 145 is permissive, many corporate bylaws or articles of incorporation contain mandatory advancement provisions and, as the three new decisions show, it is the specific wording of the bylaws that often dictates just who is (or is not) covered for advancement of fees.