U.S. Bankruptcy Judge Robert Faris has cleared the way for Hilo Hattie to proceed with its reorganization plan.

With Maui Divers Jewelry agreeing to withdraw its bid for Pomare Ltd., dba Hilo Hattie, and a new concession agreement in place, the judge said yesterday that circumstances have changed.

Faris also approved using up to $1 million in financing to buy more inventory. He denied a motion to appoint a trustee for Hilo Hattie and withdrew the motion to liquidate the company.

The plan now goes out for the approval of creditors. A confirmation for the plan's disclosure statement is scheduled for Sept. 14, after which the company could emerge from bankruptcy.

James Wagner, attorney for Hilo Hattie, said he was pleased with the judge's decision.

Based on the new plan filed on Monday, Hilo Hattie will cancel its existing concession agreement with Maui Divers from 2001 and enter a new one this month.

Maui Divers, which loaned Hilo Hattie $1.25 million before the company filed for bankruptcy in October 2008, will become an unsecured creditor and receive 5 percent of the amount it is owed over the next five years.

Under the previous agreement, Hilo Hattie was going to repay the loan through setoffs of future concession rent.

Maui Divers also will have to pay a $750,000 renewal fee for the new concession agreement in Hilo Hattie's seven stores in Hawaii.

“;I'm very happy with the way things worked out,”; said Robert Taylor, chief executive of Maui Divers. “;Our first choice all along was to have somebody else come in, buy the assets, and continue our jewelry concession.”;

Jewelry sales inside Hilo Hattie stores account for about 20 percent of Maui Divers' sales, according to Taylor.

“;Based on what we've done in the past, that is a great deal of business for us,”; he said.

In May, Maui Divers offered to buy Hilo Hattie for $1 million plus $2 million in capital. But just before the sale was up for court approval, TOC Inc., the former parent company of Pomare, sold all its outstanding stock to Donald “;Bum Sik”; Kang, owner of apparel manufacturer Royal Hawaiian Creations.

Kang, the new CEO of Hilo Hattie, was going to cancel Maui Divers' concession agreement and put it out to bid. At least one other jewelry business was interested, according to Chief Operating Officer Mark Storfer.

Royal Hawaiian offered a $1 million infusion of capital, and is offering an additional $2 million once the plan is confirmed.

Royal Hawaiian's operations will be relocated to the Nimitz property, and Kang will pay rent of $24,000 per month.

The plan, however, mentions the need to reduce overhead through further staff reductions. Hilo Hattie currently has about 200 employees.

Ted Pettit, attorney for the committee of unsecured creditors, opposed denying the motion to appoint a trustee. He said Kang was taking no risk, having only paid $25,000 for the stock, and has “;no skin in the game.”;

A court hearing on Hilo Hattie's motion to assume store leases with several landlords, including General Growth Properties, is scheduled for Aug. 19.

“;If you liquidate the company, nobody wins,”; said Taylor. “;If you go forward, the administrative expenses are paid for by Mr. Kang, the vendors have future business, and the unsecured creditors get 5 cents on the dollar.”;