Tsung v Industrial Development Corporation of South Africa Limited and Another

Robert Cheng-Li Tsung and his son, Robert Hsu-Nan Tsung, were directors of Dynasty Textiles (Pty) Ltd, a company funded largely through loans from the Industrial Development Corporation of South Africa Ltd (IDC) and its subsidiary Findevco. By 2003 Dynasty Textiles was factually and commercially insolvent and unable to pay its creditors, particularly Findevco. Despite this, the Tsungs caused substantial repayments of shareholders’ loans to themselves and their related entity, Lio Ho International Co Ltd, including a controversial payment of approximately R10.3 million transferred overseas through the company’s bank account shortly before they left South Africa. These transactions occurred contrary to IDC instructions and while negotiations for a debt–equity swap were pending. IDC and Findevco sued the Tsungs under s 424(1) of the Companies Act 61 of 1973, alleging that they had carried on the company’s business recklessly or with intent to defraud creditors.

The appeal was dismissed with costs, including the costs of two counsel. The declaration that the appellants were jointly and severally personally liable to Findevco in the agreed amount of R32 340 346 was confirmed.

The case is significant for reaffirming the scope of directors’ personal liability under s 424(1) of the Companies Act 61 of 1973, particularly that creditors need not prove causation between the impugned conduct and insolvency where a company is already insolvent. It also underscores the court’s willingness to disregard corporate personality where directors misuse company assets for personal gain.