Patrick Lim
Partner at Raj, Ong & Yudistra
As part of the second volume of this series on legal contract audits, we are taking the time to explore what are the personal risks incumbent on the management of companies who may not have sufficient controls, such as regular contract audits, in place.
In some cases, personal risks can occur if the management is found to be responsible for the company’s failure to comply with laws and regulations or to adequately protect the company’s interests.
For example, if a company’s contracts are not in compliance with relevant laws and regulations, and the management is found to have been aware of this or to have been negligent in addressing the issue, the management could potentially face personal liability. This could include fines, imprisonment, or other penalties.
Similarly, if a company is involved in a legal dispute or challenge related to its contracts, and the management is found to be responsible for the breach or to have acted improperly, the management could also face personal liability.
Here are several ways in which personal liability can arise for the management of a company if the company does not conduct regular legal contract audits:
- Violation of laws and regulations: If a company’s contracts are not in compliance with relevant laws and regulations, and the management is found to have been aware of this or to have been negligent in addressing the issue, the management could potentially face personal liability. This could include fines, imprisonment, or other penalties.
- Breach of fiduciary duty: If the management of a company fails to act in the best interests of the company, it could be in breach of its fiduciary duty. This could include failing to protect the company’s interests by not conducting regular legal contract audits. If the management is found to have breached its fiduciary duty, it could potentially face personal liability.
- Personal guarantees: If the management of a company has personally guaranteed the company’s contracts, it could be held personally liable if the company breaches those contracts. This could occur if the company fails to conduct regular legal contract audits and is not aware of all of the terms and conditions of the contracts.
Overall, there are several ways in which personal liability can arise for the management of a company if the company does not conduct regular legal contract audits. It is important for the management to ensure that the company conducts these audits and takes appropriate action to address any issues or risks identified, to mitigate the risk of personal liability.