HONOLULU -- A judge on Monday refused to immediately replace the management of bankrupt aloha shirt retailer Hilo Hattie with a bankruptcy trustee.

However, the judge could do that at a hearing next month or possibly approve liquidation and shut down the 46-year-old company.

Since Hilo Hattie filed for Chapter 11 bankruptcy reorganization last fall, it has lost more than $3 million. It has only able to keep operating because landlords at its seven store locations, like Ala Moana Center, are waiving the rent, equal to $167,000 a month.

Attorney Ted Pettit represents Hilo Hattie's unsecured creditors who are owed millions.

"We're very concerned that the company has been losing money steadily since it filed bankruptcy last October," Pettit said.

Hilo Hattie said its bankruptcy reorganization hit a major snag when plans to move its flagship store to the newly renovated Royal Hawaiian Center on Kalakaua Avenue fell through. Hilo Hattie was unable to raise the $6 million it needed to build the new store at the shopping center, so the deal with landowner Kamehameha Schools fell apart earlier this year.

Hilo Hattie said it is discussing leasing space from shopping centers across the state, including Aloha Tower Marketplace, because taking visitors by free shuttle to its main store in the Nimitz industrial area has not been successful.

The creditors asked a judge to replace CEO Ted Nelson with a trustee.

"A trustee then could hopefully work with potential buyers, try to find investors and try to stop the hemorrhaging of money," Pettit said.

Jim Wagner, attorney representing Hilo Hattie, argued against appointing a trustee, saying that "would make things more complicated and more expensive."

Wagner has said the company continues to reduce expenses while it looks for new store locations.

"It's an extremely good time to look for retail space," he said, referring to the recession that left many malls with empty storefronts.

Bankruptcy Judge Robert Faris said he would continue the hearing about appointing a trustee until June 22nd, when he will also consider whether to convert the case to Chapter 7 liquidation. He worried that a trustee would look for a quick sale, and if not successful, would convert to a Chapter 7 bankruptcy, liquidating the company and throwing its 200 employees out of work.

"Liquidating {the company] may not even cover the three million in debt incurred since the bankruptcy filing in October," Pettit said.

Nelson declined to comment outside the bankruptcy courtroom.

The company said it is looking for a buyer. So far, developer Castle and Cooke confirmed to KITV it considered buying Hilo Hattie but is no longer interested because of the tourism downturn.

Kona Mountain Coffee, a coffee and candy company based on the Big Island, said it considered purchasing Hilo Hattie but backed off because the company would not give it a detailed look at financials. Kona Mountain's president, Bill Dwyer, said it had over $2 million to put into the company. Kona Mountain is a Hilo Hattie vendor, owed $4,000 in the bankruptcy.

One of the company's largest creditors is jewelry company Maui Divers, which is owed more than $1 million.