A plan to reorganize kama'aina retailer Hilo Hattie was approved by a U.S. Bankruptcy Court judge yesterday.

The approval, which wasn't contested, will allow the company to emerge from Chapter 11 by wiping out roughly $14 million of debt to keep the retailer with seven Hawai'i stores and 170 employees in business while preserving numerous vendor relationships.

Confirmation of the plan had been expected since July when Maui Divers, a major creditor and Hilo Hattie vendor, withdrew an offer to buy the company and threw its support behind a competing proposal by another creditor, Royal Hawaiian Creations, which acquired control of Hilo Hattie through a stock purchase in June.

Royal Hawaiian Creations has already invested $1 million in Hilo Hattie, and will invest $3 million more to pay claims necessary for Hilo Hattie to exit bankruptcy on Oct. 4 about a year after it filed for protection.

Leading a restructured Hilo Hattie will be Donald B.S. Kang, owner of Royal Hawaiian Creations, a local garment manufacturer that was Hilo Hattie's largest unsecured creditor with a $798,000 claim largely for unpaid merchandise.

Kang, who operated his own retail business with two stores in Waikiki from 1992 to 2008, inherits a venerable name in Hawai'i retailing with Hilo Hattie. But his challenge will be to improve operations for the company established in 1963.

Since filing bankruptcy last October, Hilo Hattie has sustained pretax losses of $7.8 million, including $3.7 million in bankruptcy expenses and write-offs related to closing two Mainland stores and other discontinued operations.