Commentary on Sections Part 1:  Auditors, Accounts, Directors' Liabilities and Investigations Summary
106.The new sections inserted by sections 19 and 20 replace the existing provisions on directors’ liability (but not auditors’ liability) in section 310 of the Companies Act 1985.  Because of this, they begin by setting out the basic prohibition on companies exempting directors from, and indemnifying them against, liability to the company, but they also introduce two important relaxations of the prohibition:
	they permit, but do not require, companies to indemnify directors in respect of proceedings brought by third parties and applications for relief from liability (covering both legal costs and the financial costs of any adverse judgment except criminal penalties, penalties imposed by regulatory bodies such as the Financial Services Authority and the legal costs of unsuccessful criminal defences or applications for relief);
	they permit, but do not require, companies to pay directors’ costs of defence proceedings as they are incurred, even if the action is brought by the company itself or is a derivative action. The director would still be liable to pay damages and to repay his defence costs to the company if his defence were unsuccessful.