STAR-BULLETIN FILE Malama Salon & Spa, which has been expanding since its founding in 2000, announced yesterday it has filed Chapter 11 bankruptcy, with debts of more than $5 million.

Malama Spa files
for bankruptcy

The local company lists debts
of more than $5 million

---

By Lyn Danninger
ldanninger@starbulletin.com

Local spa operator Malama Salon & Spa Ltd. filed for Chapter 11 bankruptcy protection Wednesday, listing debts of more than $5 million owed to more than 240 creditors and estimated assets of $2.5 million.

At a hearing yesterday in U.S. Bankruptcy Court, Malama attorney James Wagner gained approval from Judge Robert Faris for the company to continue operations at its Manoa and Ala Moana stores, complete construction of its Halekulani hotel location, but be released from a lease on its Kailua site now under construction.

A statement released by company owners Mary and Max Suiter said that while Malama's locations at Ala Moana and Manoa are doing well, an investor who had agreed to cover the costs of expansion to Kailua and the Halekulani withdrew from the deal just after Sept. 11. As a result, revenues from the two existing stores were used to pay for expansion costs.

Malama's 93 employees will not be affected by the bankruptcy petition, Wagner said.

"All employees will be paid their pre-petition and current wages," he said.

Likewise, customer gift certificates, coupons and other types of credits will also be honored, he said.

Malama is scheduled to return to court Sept. 23 for approval of an agreement with City Bank regarding an outstanding loan of approximately $1.5 million.

While a reorganization plan has not been completed, the company said it would likely seek new investors to help pay for construction costs at the Halekulani location. It will also receive $260,000 in emergency funds from cosmetic company Aveda Corp. to help continue operations.

The Minneapolis-based Aveda licensed the company to do business as an Aveda Lifestyle Salon and Spa.

Companies owed money by Malama include contractors, suppliers, utilities, the Internal Revenue Service and the state Department of Taxation, which is owed just over $157,000. City Bank is Malama's largest secured creditor.

One of the creditors who was never paid for work performed is Honolulu Plumbing Co., which did work on Malama's planned Kailua site.

The company's owner said he received notice of the bankruptcy filing yesterday, and is owed more than $35,000. Though he had not been paid for any of the work and had heard the company owed money to others, owner Glen Tango said the filing was unexpected.

"I was surprised," he said. "I was not aware they would file bankruptcy."

Malama's attorney said that once a reorganization plan is completed, he'll have a better idea of what creditors could potentially receive.

"I think once things settle down a bit they will propose a reorganization plan, but there's no date for that as yet. But it will include plans regarding creditors," Wagner said.

Malama opened its first store in Manoa in 2002. That was soon followed by another outlet located at the Ala Moana shopping center.