Malama, a local licensee of Minneapolis cosmetic company Aveda Corp., filed for bankruptcy reorganization in September, estimating assets at $2.5 million and debts at $5 million.

The company operated two luxury spas in Manoa and Ala Moana Shopping Center, which were opened in late 2000 to much fanfare.

Employees were told on Wednesday about the closures after the company's board voted three to one, with one abstention, to change the Malama's Chapter 11 bankruptcy filing to a Chapter 7 liquidation. The change will likely mean that other potential bidders could come forward to purchase the company's assets.

"I voted against closing," said Max Suiter, one of the original founders of the company and a board member.

Suiter said the two locations were profitable, but the company ran into trouble when a major investor pulled out after the Sept. 11 attacks and the company was forced to use revenues from those stores to pay for construction of two additional locations i in downtown Kailua and the Halekulani hotel in Waikiki.

Visitor arrivals were cut almost in half immediately after Sept. 11, but have since largely recovered, according to state visitor statistics. Only the number of arrivals from Asia, Japan in particular, remain significantly behind last year's numbers, experts said.

The company estimated 60 to 70 percent of its clientele was local.

"I know for Max the impact on the employees was actually the hardest thing," said Mona Wood, a company spokeswoman. "We were optimistic that the reorganization was going to go well. I guess I was overly optimistic."

The leases for the Kailua and Halekulani locations were rejected by the bankruptcy trustee because of the expected high cost of completing the renovations and operating the sites.