The senior managers risk little to nothing when betting with council money. They will get paid salary and their pensions will be paid over when the time comes. And they get the whole resources of the council to mount a defence.
Its a public body so they have not bought in or invested personal money nor so they get any type of share price linked renumeration.
They will be indemnified as they are acting as an agent of the council being sued and/or will have paid for an insurance policy (from public funds) which will pay out for legal costs and damages if they are found to be at fault.
They may suffer reputational damage but would not usually be at risk of loosing their jobs.
Senior management should follow the internal legal advice but there is a risk that legal will be ignored or worse legal give the answer their manager wants to hear because the instruction is find a way to do X. If legal itsself has been stonewalled the advice bias may have resulted in a belief that the council could create a banned persons list.
In the case of being sued external advice would be beneficial as the supplier has back that advice with an insurance policy. So if the council loose they would in turn have a claim against incorrect advice. (Provided the staff told the full story).