Yes it is possible to take backup of HSQLDB database from HSQL Database Manager i.e. Swing GUI provided by HSQL for database management. Follow the instructions step by step and you will have the backup of your database in encrypted format,i have also taken backup using java code as well,but first of all lets take a backup using HSQL Database Manager.
STEPS
Go to the folder of your HSQLDB database, in my case it is hsqldb-2.3.1.
Locate the bin folder of HSQLDB i.e. hsqldb-2.3.1\hsqldb\bin.
In bin folder you will find batch files providing GUI for database management of HSQLDB.
Run the batch file named runManagerSwing.bat, a GUI will open titled "HSQL Database Manager".
Connect to your database.
Fire the following query for taking backup:
BACKUP DATABASE TO <filename with entire path> BLOCKING
for example,
BACKUP DATABASE TO 'C:\Users\admin\Desktop\BAQCKUP\Maximus.tgz' BLOCKING
A backup file will be generated at the specified path. Make use of the above query in your java code as well and it will work.