Everything you need to know about Settlement Deeds

The difference between an agreement and a deed is one that is easily confused amongst many people. So what is the difference? And what is a settlement deed? This blog post will cover all you need to know about deeds of settlement and indemnity deeds. 

What is a settlement deed?

A deed of settlement (also known as a deed of release) is a formal document that certifies the terms of an agreement. Disputes are generally the cause for a deed of settlement, and this document is an alternative to litigation. A deed of settlement usually prevents the parties from pursuing further litigation, as the settlement deed is supposed to be final. 

What is litigation?

Litigation is the process of taking another party to court to settle a dispute. Litigation can be an expensive and time-consuming process, so other processes such as mediation and settlement deeds are a more time and cost effective way of dealing with a dispute. 

What is the difference between an agreement and a deed?

A deed is a binding promise or commitment to fulfil an obligation or take action. An agreement is a negotiated and binding arrangement between parties to a course of action. For an agreement to be legally binding, there must be offer and acceptance, with the parties demonstrating a clear intention to be legally bound. Lastly, the parties must exchange something of value to which a party does not have, and give to them in exchange for a contractual promise. The major difference between an agreement and a deed is that there is no requirement for consideration, in order for a deed to be legally binding. 

What should be included in a settlement deed?

In a deed of settlement, the following essential terms must be included:

• The date the deed is created,
• The parties involved in the dispute,
• The terms of the settlement,
• A release clause which removes either parties rights to sue each other in the future,
• All legal costs associated with the deed, and
• A notice of discontinuance which provides a limited time period in which the applicant is able to file to withdraw the case

When are settlement deeds used?

Settlement deeds are normally used to formalise an agreement between two or more parties involved in a dispute. They are a great tool and advocated for by solicitors when disputing parties are engaged in any issues regarding contract law. This broad term of contract law can include any matter from property law to workplace or industrial relations. Specifically, deeds of settlements are used when:

• Resolving a commercial dispute
• In relation to an employment contract
• Ending a personal guarantee
• Terminating a loan or credit agreement

What is an indemnity deed?

A deed of indemnity (also known as a deed of access and indemnity or a deed of insurance) is a deed signed by a company that is intended to protect a director of the company from claims made by third parties. This deed on indemnity will typically ensure that indemnities are in favour of the director. Further, an indemnity deed will cover the right of access to company information, an agreement to loan money to cover legal costs, and an obligation on the company to obtain insurance. Deeds of indemnity will not cover any claims for criminal behaviour. Indemnity deeds afford protection and limit liability for a company, and will cover the costs incurred by a director whilst they perform their role for the company. Further, the purpose is for the company to cover the costs of loss or damage and assume responsibility for their director’s actions, which will safeguard the director from personal and financial risk. 

Why should a company director have an indemnity deed?

Although not required, a deed of indemnity is highly recommended by legal professionals to reduce the risk of personal liability as a director of a company. Under the Corporations Act, there are many listed duties and obligations which a director must comply with. However, if they breach one of these duties, the director may be personally liable for the debts of the company, resulting from serious legal penalties. Thus, if there is a breach of one of these duties (eg. preventing insolvent trading), and an indemnity deed is in place, the director will not be personally liable and the legal penalties will be paid for by the company. 

What are advantages of an indemnity deed?

There are many benefits of an indemnity deed, as they can reduce the risk of a person paying costs for a business out of their own funds. Other key advantages of creating a deed of indemnity include:

• Clarifying any misconceptions about liability,
• Managing your personal risk,
• If you are a director of a company, an indemnity deed helps protect you from personal liability if any legal action arises,
• Explicitly outlining of director’s duties and obligations,
• Access to company records,
• Access to protection as a company’s constitution can be amended without your consent, and
• Access to protection for a period of time following the cessation of a director’s role.

What are disadvantages of an indemnity deed?

The Corporations Act 2001 (Cth) governs corporations and their actions, and subsequently limits indemnity in multiple ways. If you are a director, it prevents indemnifying you from:

• The liabilities you owe to the company
• Other legal obligations under the Corporations Act 2001 (Cth)
• Breach of your director’s duties
• Liability for fraudulent, dishonest or criminal behaviour
• Liability to the company itself
• Liability for specific compensation and penalty orders

What is an unlisted public company?

In Australia, an unlisted public company is generally a small company not suitable for listing on the Stock Exchange. An unlisted public company has the same powers as a publicly listed company, however, they cannot offer shares on the Australian Stock Exchange. An unlisted public company can offer shares to the public, and can provide financial returns to its shareholders. Both unlisted public companies and listed public companies have limited liability, which means that no shareholder is individually liable for their payment and the company is a separate legal entity. 

If you require further assistance with a deed of settlement, you should seek legal advice. Our Business Kitz business specialists can engage the assistance of our sister company Legal Kitz, who can provide you with advice that is tailored to your situation. You can book a free 30-minute consultation via our website now.