Also known as: reimbursing expenses · reimbursed expenses · reimburse expenses · expense reimbursement · reimbursement for expenses · expenses reimbursement
Written by attorneys · grounded in primary & secondary sources — see below
Payment or repayment of costs incurred by a director, officer, or shareholder in connection with a corporate proceeding or proxy solicitation. Authorization requires a signed written undertaking to repay if the recipient is ultimately not entitled to indemnification, and the undertaking need not be secured.
Raymond Ramos, a director of Rocky Mountain Mining, faces a shareholder suit over board decisions. Before trial he delivers a signed undertaking to repay any funds if he is later found ineligible for indemnification. The board authorizes the corporation to advance his defense costs under the statute.
Rita Russell brings a derivative action alleging director mismanagement at Rising Sun Electronics. The suit prompts the company to overhaul its compliance program and replace two directors. After the case is dismissed as moot, the court orders the corporation to reimburse Rita for her reasonable litigation expenses because the action produced a substantial corporate benefit.
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Ravi Reddy, an activist shareholder of Riverside Healthcare, proposes a bylaw requiring the corporation to reimburse reasonable proxy-solicitation expenses for qualifying shareholder nominees. The board adopts a narrower version. A court upholds the shareholder proposal because bylaws may validly address proxy access and expense reimbursement subject to statutory limits.
The director must deliver a signed written undertaking to repay any funds advanced if he or she is ultimately found not entitled to indemnification. The undertaking is an unlimited general obligation that need not be secured and may be accepted without regard to the director's financial ability to repay.
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A court may order reimbursement when the derivative action produces a substantial benefit to the corporation, such as corporate reforms or governance changes, even if the case is later dismissed as moot. The key inquiry is whether the plaintiff's suit was a substantial factor in producing the benefit.
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Yes. Bylaws may require the corporation to reimburse reasonable expenses incurred by shareholders in soliciting proxies or consents in connection with director elections, provided the provisions are consistent with the articles of incorporation and applicable law.
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…in these cases indicates that the suit must actually bring money into the court as a prerequisite to the court’s power to order reimbursement of expenses.[^maj-17] “[T]he foundation for the historic practice of granting reimbursement for the costs of litigation other than the conventional taxable costs is part of the original authority of…