Maui Divers has withdrawn its offer to buy Hilo Hattie out of bankruptcy and has thrown its support behind the reorganization plan from the local garment manufacturer that acquired control of Hilo Hattie through a stock purchase last month.

The move leaves Hilo Hattie's new owner, Royal Hawaiian Creations, which is the largest unsecured creditor in the bankruptcy case, as the only entity with a bid to bring the kama'aina retailer out of Chapter 11.

Royal Hawaiian announced the latest development in the case yesterday, and said the decision by Maui Divers was related to a new agreement for the jewelry manufacturer and retailer to continue its role as the sole jewelry concessionaire in Hilo Hattie's seven Hawai'i stores.

"All parties are happy we have reached an amicable solution that allows Hilo Hattie to move forward toward a bright new future," Donald B.S. Kang, Royal Hawaiian owner and Hilo Hattie president, said in a statement.

Bob Taylor, Maui Divers president and CEO, said his company carefully considered Kang's reorganization plan and concluded it would be in the best interest of all Hilo Hattie creditors and stakeholders to withdraw the Maui Divers purchase proposal.

"We are confident that with Don and his management team at the helm, we can continue to move forward toward our mutual goals," Taylor said in a statement.

Bringing Hilo Hattie out of bankruptcy is still subject to enough creditors voting in favor of the retailer's reorganization plan and approval by a U.S. Bankruptcy Court judge.

Hilo Hattie filed for bankruptcy in October and has lost roughly $5 million since then.

Royal Hawaiian has largely adopted a reorganization plan proposed by a California-based investment partnership that acquired Hilo Hattie from founder Jim Romig last July.

The plan involves paying $1 million to select creditors, investing $2 million in the business and discharging $14.25 million in debts held by unsecured creditors, who would receive $750,000, or 5 percent of their claims, over five years.

Maui Divers had proposed a rescue offer valued at $3 million that treated creditors and landlords differently. The company has a $1.3 million claim against Hilo Hattie that relates to a loan but is secured by the jewelry concession agreement.

As the largest unsecured creditor in the Hilo Hattie bankruptcy, Royal Hawaiian has a claim of $798,000, largely for unpaid merchandise.