A bankruptcy judge will let the owner of Hilo Hattie run the company at least until late June as the retailer struggles to produce a plan to emerge from Chapter 11.

A committee of unsecured creditors last month petitioned the court to install a neutral party to assume control of the company in large part because of deepening financial losses without a detailed turnaround plan.

But bankruptcy Judge Robert Faris yesterday reluctantly agreed to give the owner of Hilo Hattie, which filed for bankruptcy in October, a bit more time to save the venerable Hawai'i retailer.

Faris said he sought to avoid turning an exceedingly difficult situation into a disaster.

"This is a difficult case, and that is probably an extreme understatement," he said.

The judge said appointing a management trustee would likely result in the trustee liquidating or selling the company cheaply and quickly.

Hilo Hattie previously pinned its survival on opening a long-planned flagship store at Royal Hawaiian Center in Waikiki to replace its main store on Nimitz Highway in Iwilei where the expense to bus in customers isn't justified by sales.

But attempts to raise the majority of an estimated $6 million needed to construct the Waikiki store failed in the crisis that engulfed credit markets right when Hilo Hattie was trying to finance its store, and the plan was abandoned.

Hilo Hattie in a court filing two weeks ago disclosed that its new turnaround plan involves opening roughly a half-dozen more stores in heavily traveled tourist destinations, and that discussions to lease space have been held with Ala Moana Center, Aloha Tower Marketplace, Queen's Market Place on the Big Island, Kapaa Center on Kaua'i and one or more hotels in Waikiki owned by Kyo-Ya operated under Sheraton, Westin and Starwood brands.

Since October, Hilo Hattie has essentially been surviving by paying merchandise suppliers and other vendors using savings from not paying landlords rent for its seven Hawai'i stores.

Though operating losses and unpaid rent have risen above $5 million since October, landlords haven't objected to Hilo Hattie's effort to survive, and some vendors have expressed support for giving the company more time.

"We believe management is doing a good job in light of these difficult times," Bum Sik Kang, owner of Royal Hawaiian Creations, said in a written statement to Faris, asking that existing management be left in place.

Royal Hawaiian Creations is owed $798,435 by Hilo Hattie and continues supplying the retailer with aloha wear.

However, a committee of unsecured creditors, which is co-chaired by Paul de-Ville, the former chief executive officer of Hilo Hattie who is owed $723,141, sought appointment of a neutral party to run the company.

Ted Petit, an attorney for a committee of unsecured creditors, said the lack of a viable business plan for creditors to assess helped lead the committee to ask that a management trustee take over.

Petit also alleged that Hilo Hattie management has discouraged interest to buy the company from three potential buyers, including Castle & Cooke and Kona coffee producer Kona Mountain Coffee, by not allowing inspection of financial information.

Jim Wagner, Hilo Hattie's bankruptcy attorney, said no offers have been made to buy the company, and that Hilo Hattie will consider any offers.

A watchdog for the federal bankruptcy process, the Office of the U.S. Trustee, raised a concern about Hilo Hattie's deteriorating financial condition and lack of a turnaround plan two weeks ago, but took no position on the creditor's committee motion.

A hearing on a petition by the U.S. Trustee to convert the Hilo Hattie bankruptcy to a Chapter 7 liquidation is scheduled to be heard June 22. Faris continued the motion to appoint a management trustee until the same day.

Wagner said the company plans to submit a detailed reorganization plan before June 22.