A US attorney has filed an objection on the Hostess bread business sale because the contract would release Flowers Foods from environmental liabilities.
As it stands, if the deal goes ahead Flowers Foods won't have to comply with previously agreed environment obligations, the attorney said.
According to media reports, US attorney Preet Bharara filed his objection with the US Bankruptcy Court for the Southern District of New York on March 1.
"The proposed sale order, as currently drafted, would diminish or eliminate the government’s ability to enforce generally applicable police and regulatory statutes and regulations, and diminish or eliminate the buyer’s and debtor’s obligations to comply with environmental, health and safety laws,” Bharara said in the filing.
Bankruptcy v environmental law
There can be a conflict between the goals of environmental law and bankruptcy demand because not all environmental liabilities are claims.
A Chapter 11 bankruptcy in general discharges a debtor from any ‘claims’ that arose before the date of the confirmation of the reorganization plan. Under the Bankruptcy Code a claim is broadly defined as: (a) ‘right to payment’ or (b) ‘right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, regardless, in either case, whether such rights are reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured’.
Bharara made recommendations in his filing that certain language should be added to the contract to ensure that Flowers Foods must comply with environmental laws and any liabilities after the sale can be policed and regulated by US government.
Flowers Foods won its $360m bid for the majority of Hostess bread assets – including Wonder Bread and Nature’s Pride last week after no other bidders stepped up.
The purchase is subject to approval at the US Bankruptcy Court on March 19.