Also known as: advancements of expenses · expense advancement · advancement
Written by attorneys · grounded in primary & secondary sources — see below
A corporate practice by which a company pays the legal fees and costs of its directors or officers as they are incurred in defending litigation related to their corporate duties, subject to later repayment if the individual is not entitled to indemnification.
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Andrew Avery, a director of Argonaut Shipping, faces a shareholder suit over a failed contract. The board approves payment of his defense costs during the litigation. If the court later finds no right to indemnification, Andrew must repay the amounts advanced.
Anita Ali, an officer at Ashford Manufacturing, incurs substantial attorney fees in a regulatory investigation. The corporation advances the expenses under its bylaws. Repayment is required only if the final outcome shows the conduct fell outside the scope of permissible indemnification.
Amelia Amari, a director of Apex Dynamics, requests advancement of defense costs in a derivative action. The corporation conditions the advance on her written acknowledgment that the funds will be repaid if she is ultimately found not entitled to indemnification.
Alexandra Armstrong, an executive at Arcadia Retail, faces a harassment lawsuit arising from workplace conduct. The company advances her legal expenses while the case proceeds. If the court finds the conduct fell outside protected activity, repayment becomes due under the advancement agreement.
Arthur Abrams, a director of Argonaut Shipping, defends a securities fraud action. The corporation advances ongoing litigation costs under its charter. Final judgment determines whether the advance must be returned based on the outcome of the underlying claims.
Amber Alonzo, a minority shareholder-director in a closely held firm, sues over a disputed redemption. The majority advances her counsel fees during the suit. The advance is subject to clawback if the court determines the underlying conduct precludes indemnification.
A contemporaneous writing from the corporation or a written acknowledgment from the director or officer is required to establish that the advance will be repaid if indemnification is later denied.
Supporting sources
Repayment is required if the final judgment or settlement shows the individual is not entitled to indemnification under the applicable statute or bylaws.
Supporting sources
…was a wholly-owned subsidiary of a Pennsylvania corporation, the Royal Electrotype Company (Royal Electrotype). Mr. Rodd’s advancement within the company was rapid. The following year he was elected a director, and, in 1946, he succeeded to the position of general manager and treasurer. In 1936, the plaintiffs husband,…