Deed Of Indemnity Explained: Essential Guide For Australian Businesses

Running a business in Australia means managing risk every day. If you’re a company director, board member or senior manager, it’s reasonable to want personal protection when you’re acting in the interests of the company.

A deed of indemnity is a practical way to give that protection certainty. Used well, it can help you attract quality directors, give leaders confidence to make decisions, and support good governance across your organisation.

In this guide, we’ll explain what a deed of indemnity is, how it works alongside access rights and insurance, what Australian law allows (and prohibits), who should have one, what to include, and how to put it in place correctly.

What Is A Deed Of Indemnity?

A deed of indemnity is a formal promise by a company to protect a director or officer against certain liabilities and legal costs they incur while acting in their role. It’s set up as a deed so it’s binding and enforceable even without consideration, and it typically applies to both current and former officeholders.

In plain terms, if a director is sued for something done in their official capacity, the company may agree to cover their reasonable legal defence costs and certain liabilities, provided the person acted in good faith and within the scope of the law and their duties.

Deeds are a specific type of legal instrument. If you’re new to this, it can help to understand the basics of what a deed is under Australian law and why many businesses prefer them over standard contracts for governance protections.

Many companies include indemnity clauses in their Company Constitution. However, a stand-alone deed gives the director a personal, enforceable right that can’t be changed unilaterally by shareholders amending the constitution later on.

Deed Of Access, Indemnity And Insurance: How They Work

You’ll often see a combined “deed of access, indemnity and insurance”. This is a best-practice package that usually covers three pillars of protection:

• Indemnity: The company promises to indemnify the director or officer for certain liabilities and legal costs incurred in their role, subject to the limits of the law and the deed’s exclusions.
• Access: The person gets ongoing access to company documents (for example, board papers and minutes) after they leave, so they can properly defend themselves if a claim arises years later.
• Insurance: The company commits to take out and maintain directors’ and officers’ (D&O) insurance, noting that insurance has its own limits set by law and policy terms.

Why not rely only on your constitution? Constitutions can be amended by shareholders. A deed is a personal agreement between the company and the individual, and it’s much harder to vary without their consent. In addition, a deed can clearly spell out access rights, timeframes and insurance expectations in ways a constitution often doesn’t.

It’s common to align a deed’s post-tenure protections with practical timeframes (for example, seven years), as claims can arise well after a director steps down. Your board can also record key approval decisions using a Directors’ Resolution Template, which supports diligent governance alongside the deed.

What Can And Can’t Be Indemnified In Australia?

This is where accuracy really matters. Australian law sets clear boundaries on what companies can and can’t indemnify.

What’s Generally Permitted

• Defence costs and certain liabilities a director or officer incurs in the proper performance of their role, provided they acted in good faith and the indemnity isn’t otherwise prohibited by legislation or public policy.
• Costs of investigations and inquiries where the person is responding in their capacity as a director or officer, again subject to the deed’s terms and the outcome of the matter.
• Access to documents so the person can defend themselves, which is critical if issues arise after they’ve left the company.

Key Prohibitions And Limits

Under the Corporations Act 2001 (Cth), there are important limits. While this guide doesn’t quote the legislation line-by-line, here are the practical implications you should plan around:

• No indemnity for liability to the company (or a related body corporate). Companies cannot indemnify a director for amounts they owe the company or a related body corporate.
• Strict limits on paying legal costs where the outcome is adverse. If the director is found liable (or not acquitted) in certain proceedings, the law restricts the company’s ability to cover those legal costs.
• Fines and penalties are usually not indemnifiable. In many cases, indemnifying civil penalties or fines is prohibited or unenforceable as a matter of statute and/or public policy. A well-drafted deed will typically exclude penalties, fines and amounts that the law doesn’t allow a company to cover.
• Insurance also has boundaries. Companies must not pay insurance premiums for cover against certain conduct, such as wilful breaches of duty or improper use of position/information. D&O policies will also exclude many fines and penalties as a matter of law and policy terms.

The takeaway: a deed of indemnity provides valuable protection, but it can’t promise blanket cover for everything. It must be carefully drafted to reflect the Corporations Act and public policy. This is also why many boards adopt D&O insurance as a complementary layer-recognising that the policy will only respond within its lawful scope.

Who Needs One And When Should You Use It?

Any company with a board or executive team should consider deeds of indemnity as part of their governance toolkit. They’re commonly given to:

• Directors (executive and non-executive)
• Company secretaries
• Chief executives and senior officers who are making key decisions
• Advisory board members (if they’re acting in an officer-like capacity)

When should you put them in place?

• On appointment: Have a deed ready for new directors or officers before they commence.
• Board or leadership changes: Update deeds when responsibilities shift or new risks emerge.
• After restructuring or major expansion: If your risk profile changes-new business lines, new jurisdictions, increased regulatory exposure-review your protection settings.

Strong director and officer protections also help with recruitment. Candidates often expect a deed of indemnity and D&O insurance before accepting a role. If you have multiple owners, it’s wise to pair these protections with a clear Shareholders Agreement so governance, decision-making and dispute processes are aligned across your leadership documents.

What To Include And How To Execute It Properly

There’s no one-size-fits-all deed of indemnity. Your business model, risk profile, board composition and insurance settings all matter. That said, most deeds cover similar building blocks.

Core Clauses To Consider

• Parties and capacity: Identify who is being indemnified (named individual, current and former directors/officers, or a class of officeholders). Clarify that cover relates to actions in their official capacity.
• Scope of indemnity: Describe the types of liabilities and proceedings covered (for example, civil claims, investigations, examinations) and confirm the good faith/performance-of-duty basis.
• Costs and advancement: Address defence costs, when costs may be advanced, and repayment obligations if the law later requires it (for example, after an adverse outcome).
• Exclusions: Expressly exclude what the law prohibits (for example, liabilities to the company or related bodies corporate, fines/penalties, wilful misconduct, fraud, improper use of position/information).
• Access to documents: Provide ongoing access to board papers and records for a defined period (commonly several years) to support any future defence.
• Insurance commitments: Require the company to maintain D&O insurance on reasonable terms, noting that cover is subject to policy terms and the law.
• Duration and survival: Confirm that protections apply to acts during the appointment and survive after the person leaves for a sensible period (often seven years).
• Conduct and cooperation: Set expectations around notice of claims, cooperation, and not compromising the company’s insurance position.
• No limitation by constitution: State that rights under the deed operate in addition to any rights in the Company Constitution and cannot be reduced by future constitutional changes without the individual’s consent.

Execution: Getting The Formalities Right

Because this is a deed, correct execution is essential. In broad terms:

• Express it as a deed: Make clear in the document it’s intended to be a deed (for example, “executed as a deed”), and include appropriate witnessing and delivery language as required.
• Use the Corporations Act signing mechanism: Companies can execute under section 127 without a company seal (for example, two directors; or one director and one company secretary; or a sole director/secretary). A seal is not “often needed” in Australia and is generally not required.
• Electronic execution: Consider whether electronic signing is appropriate for your company and the counterparties. If you’re signing electronically, it’s worth understanding how electronic signature rules compare to wet-ink for deeds and company execution.
• Counterparts: Many deeds allow signing in counterparts so each party can sign separate copies. If that’s your approach, align it with your execution process and evidence; this often sits alongside “delivery” wording. For extra context on multi-copy execution, see signed in counterpart concepts.

Governance Tips

• Board approval and records: Ensure the board approves use of the deed for each appointee and minute the resolution. A simple Directors’ Resolution Template helps keep your records consistent.
• Align with other documents: Check your constitution, any Shareholders Agreement and your D&O policy to avoid conflicting obligations (for example, notice requirements and consent to settlements).
• Keep it current: Review deeds when you update your insurance, change your risk profile, expand to new jurisdictions, or when laws change.
• Use clear exclusions: Be explicit about exclusions that are mandated by law and any you adopt for policy reasons. Many companies also pair indemnity protections with appropriate waivers in other contexts; where relevant, a Deed of Waiver, Release & Indemnity may be used for different risk scenarios (separate from director protections).

It’s best to tailor the deed to your business rather than relying on a generic template. Templates can omit critical access rights, clash with Australian law, or include unenforceable promises around fines and penalties. Getting the drafting right upfront reduces risk for both the individual and the company.

Key Takeaways

• A deed of indemnity gives directors and officers personal, enforceable protection for certain liabilities and defence costs incurred in their role, within the limits set by Australian law.
• Best practice combines indemnity with document access and D&O insurance in one deed, so leaders have practical support if a claim arises after they leave the company.
• The Corporations Act prohibits certain indemnities (including liabilities to the company/related bodies corporate) and restricts paying legal costs after adverse outcomes; fines and penalties are usually excluded as a matter of law and public policy.
• Use a deed alongside your Company Constitution and, if you have multiple owners, a Shareholders Agreement, so all governance documents work together without conflict.
• Draft deeds carefully with clear scope, exclusions, access rights, insurance commitments and survival periods, and execute properly under section 127 (a company seal is not required).
• Review protections regularly as your business and the law evolve, and keep accurate board records using tools like a Directors’ Resolution Template.

If you’d like a consultation on putting a deed of indemnity in place for your company’s directors and officers, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.