Directors take on real personal exposure. If something goes wrong — a claim of negligence, a breach of duty, a regulatory action — a director can be sued, sometimes by the very company they serve. It is natural for a company to want to protect its directors by indemnifying them or writing an exemption into the constitution. But Singapore law draws a firm line around what protection is allowed. That line is section 172 of the Companies Act 1967, and every director and company secretary should understand which indemnities are valid and which are void.
The general rule: exemptions and indemnities are void
Section 172 provides that any provision — whether in the constitution, a contract, or otherwise — that purports to exempt an officer or auditor from, or to indemnify them against, liability for negligence, default, breach of duty or breach of trust in relation to the company is void. In plain terms, a company cannot promise to hold a director harmless for wronging the company itself. If it could, the statutory directors’ duties under section 157 would be toothless — a director could breach them safe in the knowledge that the company had agreed never to sue.
This is why a constitutional clause saying “the directors shall not be liable to the company for any loss” is not worth the paper it is written on. It is void to the extent it offends section 172.
The permitted carve-outs
Section 172 is not a total ban. Reforms to the Companies Act introduced important exceptions that let a company protect its directors in ways that do not undermine their accountability to the company.
1. Third-party liability
A company may indemnify a director against liability incurred to a person other than the company. If a director is sued by a third party — a counterparty, a regulator, a claimant — and incurs liability, the company can agree to cover it. What it cannot do is indemnify the director against liability owed to the company itself. There are limits even here: the indemnity generally cannot extend to criminal fines, penalties for regulatory non-compliance, or the costs of an unsuccessful defence in certain proceedings.
2. Costs of a successful defence
A company may indemnify a director for legal costs incurred in successfully defending civil or criminal proceedings, or in connection with certain applications to the Court in which the Court grants the director relief. The logic is that a director who is vindicated should not be left out of pocket for defending themselves.
3. Insurance premiums
A company may pay for, or reimburse, the premiums for insurance covering a director against certain liabilities. This is the statutory basis for Directors’ and Officers’ (D&O) liability insurance, which has become the standard, practical way to protect a board. Because the permitted indemnity is narrow, D&O insurance does the heavy lifting in practice — a point we explain in our guide to D&O liability insurance in Singapore.
Void vs valid: a quick reference
| Protection | Status under section 172 |
|---|---|
| Exempting a director from liability to the company | Void |
| Indemnifying a director for liability owed to the company | Void |
| Indemnifying a director for liability to a third party | Permitted (with limits) |
| Indemnifying costs of a successful defence | Permitted |
| Paying D&O insurance premiums | Permitted |
What this means for your constitution and contracts
Many older constitutions still contain broad indemnity articles drafted before the reforms. These are not automatically dangerous — the offending part is simply void — but they can mislead directors into a false sense of security. When reviewing or updating a constitution, the indemnity article should be redrafted to track the section 172 carve-outs precisely: third-party liability, successful-defence costs, and insurance. A well-drafted service agreement or deed of indemnity for a director should do the same.
Directors should also remember that section 172 sits alongside, not instead of, the rest of the accountability framework — the statutory and fiduciary duties, the consequences of disqualification, and personal liability in insolvency. No indemnity clause can substitute for acting honestly and with reasonable diligence.
How this plays out in practice
Consider a director sued by the company’s liquidator for allowing the company to trade while insolvent. The company’s constitution contains an old article promising to indemnify directors against “all losses and liabilities”. Can the director rely on it? No — to the extent the claim is for breach of duty owed to the company, the indemnity is void under section 172, and the director must answer the claim on the merits. Now consider the same director sued by an external supplier who alleges misrepresentation. Here the liability is owed to a third party, so the company may lawfully indemnify the director (subject to the statutory limits), and a properly worded deed of indemnity or constitutional article will hold up.
Note too that section 172 protects the company’s auditors as well as its officers — an exemption or indemnity purporting to relieve the auditor of liability for negligence to the company is equally void. Boards sometimes forget this when negotiating engagement letters. The safest course is to assume that anything shielding an officer or auditor from liability to the company will not survive challenge, and to route real protection through third-party indemnities, successful-defence cost cover, and D&O insurance.
Practical takeaways
- A promise to protect a director against liability to the company is void — do not rely on it.
- You can indemnify third-party liability, successful-defence costs, and fund D&O insurance.
- Redraft legacy “blanket indemnity” articles to match the section 172 carve-outs.
- Treat D&O insurance as the practical backbone of director protection.
You can read section 172 in full on Singapore Statutes Online and general officer-duty guidance on the ACRA website. Raffles Corporate Services reviews constitutions and director service agreements to ensure indemnity provisions are valid and enforceable, and coordinates D&O cover so your board is protected the way the law actually allows.
— The Editorial Team, Raffles Corporate Services