It is essential in Brazil that directors, board members, and administrators have adequate protection to actively manage companies without risking their personal assets being compromised due to the regular exercise of their functions.
Business management involves significant responsibilities, especially in Brazil, such as tax, regulatory, labor, environmental, among others, and it is not always possible to eliminate exposure to questioning and disputes.
In Brazil we identify the Indemnity Agreement as the most appropriate tool for this protection. Its central objective is to guarantee the reimbursement or compensation of losses and costs related to judicial, administrative, or arbitration proceedings arising from acts committed by managers in the exercise of their duties or powers. It is also possible to include predictions related to reputational damage.
Through the indemnity agreement, the company assumes responsibility for fully covering these costs and losses, thus preventing the personal assets of executives from being affected in lawsuits related to regular management acts.
In general terms, the indemnity agreement should clearly reflect that:
1. The company has an interest in protecting its executives against financial risks arising from the performance of their duties; and
2. This protection of personal assets is conditional upon compliance with standards of conduct previously defined in the contract.
It is also essential to establish explicit limits for this compensation in Brazilian companies, excluding, for example, situations in which the executive: (i) acts outside the scope of their duties; (ii) acts in bad faith, with malice, gross negligence, or fraud; or (iii) acts in their own interest or that of third parties, in conflict with or to the detriment of the company’s interest.
The indemnity agreement is, today, one of the central instruments for implementing good corporate governance practices in Brazil, applicable to different types of companies and corporate structures, with greater or lesser degrees of scope in the assumption of responsibilities by the company.
