The decision in Schoon v. Troy Corp., now on appeal, clarifies that in Delaware, unless otherwise provided in the bylaws or agreed by contract, a director’s right to advancement of expenses does not vest until the company’s obligation is triggered.
A paper, co-authored by David A. Katz of Wachtell, Lipton, Rosen & Katz and posted on the Harvard Law School Corporate Governance blog, explores the implications of the decision, noting that it is “significant since the advancement of expenses in corporation-related lawsuits, along with broad indemnification, is an important feature of director protection.
“The decision may leave former directors, in particular, vulnerable to bylaw amendments affecting their right to advancement of expenses.”