A local aloha wear manufacturer yesterday made an 11th-hour bid to bring Hilo Hattie out of bankruptcy.

The surprise bid from Royal Hawaiian Creations was made in federal bankruptcy court after a deal finalized on Friday in which the firm gained control of Hilo Hattie by acquiring the retailer's largely worthless stock from a California partnership. That partnership bought Hilo Hattie for $1 million last July from founder Jim Romig and then filed for Chapter 11 in October.

Royal Hawaiian is offering to invest $3 million in Hilo Hattie and keep the retailer operating.

The move now pits two major creditors in the bankruptcy case against one another for control of one of Hawai'i's most well-known retail chains.

Maui Divers made its own $3 million bid last month to keep Hilo Hattie in business but has yet to receive a hearing on the offer. The company is now weighing its next move.

Bankruptcy Judge Robert Faris has scheduled a hearing for Monday to decide how the case should proceed.

Honolulu-based Royal Hawaiian is the largest unsecured creditor in the Hilo Hattie bankruptcy, with a claim of $798,000, largely for unpaid merchandise.

Maui Divers, which operates jewelry concessions inside Hilo Hattie's seven stores, is owed $1.3 million that relates to a loan but is secured by the concession agreement.

The principal difference between the two rescue offers has to do with which creditors would have its debts repaid, and to what extent.

The bid by Maui Divers offers to buy Hilo Hattie for $1 million that would be used to partially repay creditors with claims secured by assets such as store leases, inventory and equipment.

Hilo Hattie owes $900,000 alone in deferred rent to the Harry and Jeanette Weinberg Foundation for its flagship Nimitz Highway store, which is also tied to a $700,000 mortgage held by secured creditor Central Pacific Bank.

Yesterday Jim Wagner, an attorney representing Hilo Hattie, reiterated that the Maui Divers offer, which also would invest $2 million in operations, is insufficient.

"It's not enough," he said. "It's not even close."

In bankruptcy, secured creditors hold a priority to be paid before unsecured creditors. In Hilo Hattie's case, unsecured creditors are owed about $15 million and stand to receive nothing from a sale to Maui Divers.

Royal Hawaiian said it intends to substantially follow a reorganization plan submitted last week by Hilo Hattie's former owner, which calls for fully repaying secured creditors over time and paying unsecured creditors 5 percent of what they are owed over five years.

For unsecured creditors, that equates to receiving $750,000 of $15 million.

Both proposals promise to keep Hilo Hattie's roughly 200 employees working, and continue business with dozens of vendors.

Donald Bum Sik Kang, president of Royal Hawaiian and now Hilo Hattie, said he believes he can improve efficiencies of Hilo Hattie and restore its financial viability. He said he would keep the Nimitz flagship open, and seek to open additional stores in Hawai'i, particularly in Waikiki.

"I'm certainly humbled by the opportunity and challenges of heading one of Hawai'i's most recognized and storied business names," Kang said in a statement. "I'm confident, however, that the strengths of my new management team, and the company's improved financial wherewithal, its industry knowledge and strong relationship with stakeholders — including its vendors, employees and other business partners — will allow us to quickly emerge out of bankruptcy and ultimately lead to a highly successful and reinvigorated Hilo Hattie."

Kang replaces Ted Nelson as chief executive of Hilo Hattie. Also resigning with Nelson was Hilo Hattie President John Scott, as part of Kang's stock acquisition. A value of the stock purchase was not disclosed.

Nelson led an investor group that bought Hilo Hattie from Romig. Nelson additionally owns franchise rights to Fantastic Sam's salons in Hawai'i and California through another company.

Nelson in a statement said he is convinced that Kang has the knowledge, experience, organization, contacts and desire to bring Hilo Hattie out of bankruptcy amid a challenging economy.

Kang added that he has retail experience, having operated two stores in Waikiki from 1992 to 2008.

However, Ted Pettit, an attorney representing unsecured creditors in the bankruptcy case, referred to the reorganization plan that was filed under Nelson's leadership and embraced by Kang as "a joke."

Pettit said Kang isn't in the retail business and questioned his intent to keep Hilo Hattie stores open.

By comparison, Pettit said, Maui Divers is a well-established retailer whose bid for Hilo Hattie has been endorsed by a committee of unsecured creditors that views Maui Divers as the best chance to preserve a sales channel for their goods even though they wouldn't recover debts owed before the bankruptcy filing.

Cuyler Shaw, an attorney for Maui Divers, suggested to Faris that the company would withdraw its offer, especially if Royal Hawaiian is allowed to invest money in Hilo Hattie that becomes a new high-priority claim. "We're not going to chase this," he said.

Faris prohibited Royal Hawaiian from investing any money in Hilo Hattie but said the company's offer has to be given serious consideration despite its late appearance.