Hawaii Medical Center's shareholders would lose their ownership stake and its two hospitals operated by a nonprofit corporation under a plan being put forth by unsecured creditors of the bankrupt company.

The plan, filed recently in bankruptcy court, calls for canceling the stake held by a for-profit Kansas hospital operator and 132 local physicians that came together to buy the former St. Francis Medical Center hospitals in January 2007.

In their place, a new board of directors would be installed to oversee the new nonprofit operation. By changing from a for-profit entity to a not-for-profit, the operation will save between $5 million and $6 million a year in general excise taxes and property taxes, according to the proposal.

Repayments of $51 million of loans and almost $20 million of trade debt would be repaid over periods of up to seven years.

"The plan will afford the reorganized debtors the opportunity and ability to continue their business as a viable going concern and preserve ongoing employment for the reorganized debtors' employees," said the 156-page proposal filed by the unsecured creditors committee.

The plan, along with one previously filed by Hawaii Medical Center and another expected from former owner St. Francis Healthcare System of Hawaii, is scheduled to be considered in a hearing next month in bankruptcy court.

The plans have the goal of putting the operator of a 240-bed hospital in Liliha and a 102-bed hospital in 'Ewa on a better financial foundation. Hawaii Medical Center filed for bankruptcy in August 2008 after racking up $21.8 million of operating losses.

Creditors and others were allowed to file their own restructuring proposals in the bankruptcy after Hawaii Medical Center found little support for a plan it proposed earlier this year that called for turning the Liliha hospital into a nonprofit venture while keeping the 'Ewa facility a for-profit operation.

Since that time, Hawaii Medical Center has reworked its proposal, saying it may sell the Liliha facility, known as Hawaii Medical Center East, to help pay down debts if it is unable to refinance or sell the $46.3 million of loans it has with St. Francis Healthcare.

The Hawaii Medical Center plan also calls for paying vendors 70 cents on the dollar and possibly seeking a court ruling that reduces or disallows some of what it owes St. Francis Healthcare.

St. Francis Healthcare sold the hospitals to Hawaii Medical Center along with providing seller financing for the transaction. St. Francis Healthcare yesterday said it will be coming out with a plan of its own.

"We are preparing to submit our own reorganization plan and are now carefully considering all of the details for a solid plan that will benefit physicians, employees, patients, and the community," said Sister Agnelle Ching, chief executive officer of St. Francis Healthcare.

Salim Hasham, Hawaii Medical Center chief operations and restructuring officer, said the filing by unsecured creditors was anticipated. The group includes a number of companies that sold goods or services to the hospitals and include local firms such as Clinical Laboratories of Hawaii, the Organ Donor Center of Hawaii and Liberty Dialysis Hawaii.

He said some weaknesses of the creditor plan include a promising of repayment in full of debts that are owed. Hasham said cutting what is owed would result in the hospitals having to pay less debt service and improving their chances of survival in a challenging economic environment.

But he said Hawaii Medical Center, creditors and others are still continuing to talk outside of the bankruptcy court proceedings in an attempt to find common ground.

"This is just a part of the process; we were expecting this," Hasham said. "We are currently reaching out to other parties to see if we can come to an agreement."

The creditors' plan also includes the possibility of reducing what's owed to St. Francis Healthcare, along with renegotiating leases with the healthcare system founded by the Franciscan Sisters.