What happens when a business built on a romantic relationship survives long after the bond itself has collapsed?
The High Court has declined to liquidate a company founded and run by former lovers, instead ordering an independent valuation and buy-out of their shareholding after finding that the breakdown of their relationship had irreparably damaged the management of the business.
In a judgment involving Paradiso Toys Limited, the court found that the collapse of the relationship between shareholders Petra Lettau and Yves Berten had extended beyond their personal lives and negatively affected the company’s affairs.
‘Having considered the circumstances as a whole, I am satisfied that the breakdown of the relationship between the parties has extended beyond their personal differences and affected the manner in which the affairs of the company are conducted,’ the court said.
Ms Lettau, who owns 33.33 per cent of the company, sought to have Paradiso Toys liquidated under Section 424(1)(g) of the Insolvency Act, arguing that she had been unfairly excluded from the company’s affairs after her relationship with Mr Berten ended.
The court, however, held that liquidation would be too drastic a remedy because there was an adequate alternative available under the Companies Act and the Insolvency Act.
‘Although the court must resist the temptation to resolve matters of a failed personal relationship through company law, it must equally resist the corresponding temptation of pretending that the personal relationship is irrelevant where the company was itself built upon it,’ the judge said.
The court noted that the parties’ personal and corporate lives had been closely intertwined. They jointly incorporated Paradiso Toys Limited, served as shareholders and directors, and operated the Zum Zum Beach House business through the company.
The company’s property also housed the residence they shared during their relationship.
‘In other words, the line between their partnership and separate corporate dealings under the company was a thin one,’ the court observed.
According to court records, Ms Lettau said she was an original subscriber to the company and remained a shareholder holding 33.33 per cent of its issued shares.
She told the court that she invested about 500,000 euros from the sale of a property known as Turtle Beach House into the development of the company’s hospitality business, which includes six guest rooms, a presidential suite and a residential wing.
Ms Lettau claimed that after the relationship deteriorated in 2021, Mr Berten excluded her from the management of the company, removed her from decision-making, cut off her access to funds and eventually forced her out of the premises where she had lived.
She further alleged that she was removed as a director through an extraordinary general meeting held in April 2022 without being served with notice of the meeting.
The shareholder also complained that she was subsequently excluded from annual general meetings and denied access to company records despite retaining her shareholding.
In 2024, Mr Berten offered to purchase her shares for 100,000 euros, with part of the amount payable immediately and the balance through monthly instalments. Ms Lettau rejected the offer and instead proposed an independent valuation of the company.
She argued that the cumulative effect of her exclusion from management, the breakdown of trust, and the inability to secure a fair exit justified the liquidation of the company.
Mr Berten opposed the petition, maintaining that the dispute stemmed from the collapse of the parties’ romantic relationship rather than any oppression in the management of the company.
He denied diverting company revenue or concealing company accounts and argued that Ms Lettau had voluntarily disengaged from the business.
The businessperson further maintained that the company remained solvent and operational and that liquidation would unfairly affect employees, clients and ongoing business obligations.
The court agreed that there had been a complete breakdown of trust between the shareholders but found that liquidation was not the most appropriate remedy.
‘While the evidence presented before this Court does not outrightly classify the Respondent’s actions as burdensome, harsh and wrongful to meet the criteria of oppression, I do find that the manner in which the affairs of this closely held company have evolved following the breakdown between the parties has become unfairly prejudicial to the Petitioner’s interests as a member,’ the judge said.
The court found that the relationship had irretrievably broken down and that there was no realistic prospect of the parties managing the company together in a mutually beneficial manner.
It therefore ordered an independent valuation of the company and the parties’ shareholding by a firm of certified public accountants to be agreed upon within 30 days. If they fail to agree, the chief executive officer of the Institute of Certified Public Accountants of Kenya (ICPAK) will nominate the valuer.
Once the valuation is completed, Mr Berten will have the first right to buy Ms Lettau’s 33.33 per cent stake. If he declines, Ms Lettau will have the option of purchasing Mr Berten’s 66.66 per cent shareholding at the value determined by the same valuation.