Directors and executives need to take steps to avoid unexpected and unlimited personal liability when their company gives a warranty or assurance. They are not safe just because it is only their company entering into a document or dealing.

Metz Holdings directors held liable

In the Metz Holdings case, directors of a company were held to also be liable by the Federal Court when their company was in breach of a warranty in a contract for the sale of its business.

The directors were held personally liable despite only being directors and not themselves parties to the contract. They were not protected by their company being the usual limited liability company or by their company's status as a separate legal entity.

Even worse, they were not entitled to the benefit of any exclusion or limitation wording in the contract.

Three tips for prudent directors and executives

• Don't casually give any warranty or assurance for your company in the first place. Often a warranty can be not given or substituted. For example, don't warrant that products are free from defects. Just offer a repair or replacement period if there is a defect.
• If a warranty or assurance has to be given, be extremely careful about the actual words. Explicitly state the limits, restrictions and qualifications. Don't just hope that a judge will imply them, because a judge usually won't.
• Especially in larger companies, where a warranty is being given that is really about "knowledge" of the company be very specific in the warranty about what that means. Usually it just means that questions have been asked of certain specific executives. Directors especially need to ask the right questions of the right people and keep good records.

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Excerpt from Mondaq.

Another tip for prudent directors and executives is to make sure their organisations comply with the principles of good business practice. PolicyPoint can help by ensuring all employees and stakeholders read and understand important policies and processes.

Don’t be caught by legal traps on social media this Christmas. By using PolicyPoint, you can ensure that vital information and policies are read and understood by every employee in your organisation.