Judge Gives Reprieve : Maui and Sons Fends Off Bank’s Liquidation Bid

Maui and Sons, the Irvine-based surf wear maker, won at least a temporary reprieve in federal court Wednesday after showing a net improvement of $454,000 during its first month in bankruptcy proceedings.

U.S. Bankruptcy Judge John E. Ryan decided that Maui and Sons can spend up to $700,000 to keep the company running through May 31. With the ruling, Mitsui Bank--Maui’s only secured creditor which is owed about $3.3 million--lost a bid for the surf wear company’s immediate liquidation.

“We’re very confident and very excited,” said Steve Prested, one of Maui’s two founders, after the hearing in Santa Ana. “We’ve gone back to basics . . . and (the results) are above our projections.” Prested said he and partner Jeff Yokoyama are optimistic they will be able pull Maui out of its fiscal woes and retain ownership.

Maui and Sons filed for protection from its creditors under Chapter 11 of U.S. bankruptcy laws on April 4. The 7-year-old manufacturer listed liabilities of $7.1 million owed to more than 200 creditors and assets of $2.5 million.

But the company’s fortunes are changing, Maui’s attorney William Lobel told Ryan on Wednesday. Lobel presented evidence that at the time Maui filed for bankruptcy, it had $233,000 in cash, $1.6 million in accounts receivable and inventory valued at $2.6 million.

As of May 6, according to Lobel, the company’s cash totaled $696,737, accounts receiveable are now more than $2 million and inventory is valued at about $2.1 million.

Judge Ryan agreed, despite arguments by Mitsui’s counsel, Robert L. Morrison, that Maui will face a $400,000 to $600,000 inventory write-down within the next two months. Morrison stressed that collection of receivables could be slow and presented written testimony from a Maui competitor--Larry Ornitz, chief executive of Tustin-based Ocean Pacific Sunwear Ltd.

In court documents, Ornitz said that Maui’s inventory is “substantially outdated” with 70% of it “past season,” Morrison told Ryan.

Maui and Sons will return to court May 31 to seek funds to continue operating.