Owners Spar Over Cruise Line

Creditor of Seattle-based Society Expeditions seeks to force the company into bankruptcy with plans to take over and expand

By: Theresa Norton Masek

The main creditor of Seattle-based Society Expeditions is trying to force the company into bankruptcy with plans to take over and expand the one-ship adventure line into a major small-vessel cruise operator.

But the current management team of Society, headed by German businessman Heiko Klein, says the creditor’s efforts, which include a Chapter 7 bankruptcy petition, are “groundless.”

The creditor, Patrician Cruises Ltd., filed for the involuntary bankruptcy Oct. 3 in Washington, said Bruce Fischer, managing director of Patrician.

Klein’s group hoped to file around Oct. 22 to seek dismissal of the bankruptcy petition, according to Ute Hohn-Bowen, president of Society Expeditions International, which oversees the Seattle office.

Despite the power struggle, Society’s ship, the World Discoverer, continues to operate and is now cruising in the South Pacific.

Society is equally owned by Hibernian Nordic Cruise Line and the Society Expeditions Appreciation Trust, a Bermuda entity headed by Klein.

A group of high-powered American investors called Adventure Expeditions & Travel owns 75 percent of Hibernian Nordic and 100 percent of Patrician.

Patrician at one time owned the World Discoverer and says it was never paid charter fees and commissions promised by Society in exchange for Klein’s 45 percent ownership stake in the ship.

Patrician was to receive 30 percent of all sales. “Society never paid anything on the charter or anything on the commissions for the past year and a half,” Fischer said.

He says the total due Patrician is now $15 million. Fischer said Patrician has been trying to negotiate with Klein.

“It came down to a Catch-22,” Fischer said. “We’re trying to negotiate a takeover of the company, but we’re not willing to walk away from $15 million. We got tired of dancing with Heiko and his delay tactics. He’s not even willing to sit down with us.”

Klein’s side maintains it does not owe Patrician $15 million.

“The bankruptcy was filed in an attempt to embarrass Society, to force payment of that disputed amount and to force the sale of Society itself,” according to a statement issued by Klein’s management team. “The facts are that Society is a solvent operation that pays its obligations, and that the bankruptcy petition is groundless.”

Fischer said Adventure Expeditions & Travel is comprised of a “who’s who list of the travel industry,” entrepreneurial business people with experience in cruise lines, ship ownership, land-based travel operations and marketing.

He would not divulge the identity of the investors, however, saying that could jeopardize negotiations to build or buy ships.

Adventure Expeditions & Travel would like to take over Society, Fischer said, and create a multi-brand, small-ship cruise company.

“The intent would be to build an 800-pound gorilla,” Fischer said. “We’re not interested in a one-ship company.”

“If we came onboard with the assets we have, we’d be a major player in the industry and we’d be positive for the industry,” Fischer said.

If Patrician’s bankruptcy petition proceeds, it could lead to the liquidation of Society. Adventure Expeditions & Travel could then step in to buy the assets.

“We’re hoping this can all be put to rest prior to the real pain and suffering of shutting the company down,” Fischer said. “But it’s a matter of time before we end up with the company. We’ll end up with the name, the brand and the marketing.”

The World Discoverer, however, is owned by a Bahamian subsidiary of the Sembawang Shipyard of Singapore, which renovated the ship before it began operating for Society.

The shipyard held a second mortgage on the ship; the first was held by the Bank of Scotland, which arranged the financing for Society’s purchase and renovation of the ship.

In June, Fischer said, the bank seized the ship in Nome, Alaska. The shipyard bought out the bank’s ownership of the World Discoverer and now owns it outright.

However, after missing three or four cruises in June, the shipyard did charter the ship back to Society, Fischer said.

But the company has been doing “poorly,” Fischer said, with occupancies of about 60 percent and 2002 revenues of about $10 million.

Once Society responds to the bankruptcy petition, a court hearing will be scheduled. Resolution could come by year’s end: just in time for Society Expeditions to celebrate its 30th anniversary next year.