Klukwan files for bankruptcy due to $7 million debt

The Southeast Alaska Native village corporation Klukwan Inc. filed for bankruptcy this week. But it plans on remaining in business.

Klukwan is an unincorporated village with about 100 residents about 20 miles from Haines. The village corporation has around 250 shareholders.

Klukwan Inc. filed a voluntary petition for what’s called Chapter 11 bankruptcy. That allows for reorganization, meaning the debtor usually proposes a plan to keep its business alive and pay creditors over time. The court could also determine how the debts will be settled.

Klukwan Inc. manager Ralph Strong said the filing stems from an approximately $7 million dollar debt with Travelers Insurance Company. Strong said Travelers was the bonding company for South Coast Construction in Ketchikan, a company owned by the corporation that closed in 2002.

Strong said the two companies were never able to come to agreement on how to settle the outstanding debt. But the main point of concern for Klukwan is that Travelers is trying to put a lien on the distribution it receives from its regional Native corporation, Sealaska. That, according to Strong, is not allowed under the Alaska Native Claims Settlement act.

So Klukwan filed for Chapter 11 to protect itself, he said.

Strong said the federal bankruptcy court will make a determination whether such a lien is allowable for collection against a Native corporation. He said that decision could impact every corporation formed under the Alaska Native Claims Settlement Act.

The bankruptcy filing lists all of Klukwan’s creditors. In addition to Travelers Insurance, they include the IRS, Sterling Savings Banks, the corporation’s own general income trust and Rosemarie Hotch. Hotch is a shareholder and board member who filed suit against the corporation last year for the way its trusts were managed and used.  An undisclosed settlement was reached on that case late last year.

Shareholders in 2011 approved a $12.6 million payout from the company’s general income trust. But Strong said neither the Hotch settlement nor the payout caused the bankruptcy filing.

The corporation sent a letter to shareholders this week notifying them of the bankruptcy filing.

Strong said the outcome in bankruptcy court could be good or bad for shareholders. But the situation, he said, quote, “can’t get any worse.”

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