Meaning of 'Breach of Indemnity Principle' ?

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Iwork for a company ltd that has been involved in a management dispute with its members, of which there are only three. Solicitors got involved and a member took action against the company. For accounting purposes the company directors chose to try and keep any of the dispute costs, albeit in the company name, actually processed via the directors own accounts or the solcitors holding account. One of the members raised a fuss about this and said the named party was the company itself and therefore it had to account for any costs and payments on record. the directors, at a members meeting confirmed that, by this method the company had not been involved in the legal payments and costs. they did not explain how it worked and it was all very opaque. none of the legal costs, or resulting payments have been declared. though there was some mumbling about it happening once things had concluded.. Anyway the member put this query to a judge saying how can he owe the company money if the company itself hasnt paid anything itself. the judge said something about a quection of potential 'breach of indemnity principle', or something to that effect. and ordered that the directors have to make witness statements about how costs which were made in the company name were being dealt with by the directors themeselves. the company solicitors are keeping quiet, probobly because it was there idea. though they have said its all above board as the money was being effectively dealt with via 'loans on behalf of the co. but to and from the directors themselves'.

so question is, in this context what is a breach of indemnity principal. and is it something to worry about?

Replies (5)

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By FactChecker
18th Jan 2024 19:02

Not enough detail to warrant even an attempted response of any value.

But everything here appears to be legal in nature - so not relevant or appropriate to an accounting forum.

Oh and ... Yes, based on what little can be gleaned from the info provided, I'd say that anyone involved in this has "something to worry about" - sufficient to warrant a visit to a lawyer.

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Replying to taxdigital:
By FactChecker
18th Jan 2024 20:14

Looks likely ... but still recommend a visit to a lawyer, pronto.

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By I'msorryIhaven'taclue
19th Jan 2024 12:14

Do we deduce that the plaintiff director lost his/her case, and the respondent company won?

If so, and the fee notes / invoices from the company's outside advisors were contracted with and billed to the company itself, then all you have prima facie is a case of (the other) directors/members settling the company's liabilities on its behalf.

Bet you a jam doughnut there'll be a twist in the plot... perhaps no contractual agreement was in place when the professional advisers carried out the work. Or maybe an agreement was in place between advisers and directors/members (ie not with the company itself).

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