U.S. Attorney objects to element of Hostess’ deals

by Eric Schroeder
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WHITE PLAINS, N.Y. — U.S. Attorney Preet Bharara on March 1 filed an objection in the U.S. Bankruptcy Court for the Southern District of New York regarding Irving, Texas-based Hostess Brands Inc.’s planned sales of most of its bread business. Mr. Bharara said the sales contracts should not be approved as currently structured because the buyers would be improperly released from liabilities and obligations to comply with environmental laws.

“The government objects to the sale motion because 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,” Mr. Bharara said in the filing. “Such an unprecedentedly broad release of liability is not authorized by the bankruptcy code, and runs squarely contrary to the established practice in this court. Accordingly, to the extent the motion seeks approval of such broad releases, it should be denied.”

Mr. Bharara, who has been Attorney for the Southern District of New York since 2009, said the following language should be added to the orders approving the sale procedures:

“Nothing in this order or the asset purchase agreement releases, nullifies, precludes or enjoins the enforcement of any liability to a governmental unit under police and regulatory statutes or regulations (including but not limited to environmental laws or regulations), and any associated liabilities for penalties, damages, cost recovery, or injunctive relief that any entity would be subject to as the owner, lessor, lessee, or operator of property that is sold or transferred pursuant to this order.

“Nothing contained in this order or in an asset sale agreement entered into pursuant to this order shall in any way diminish the obligation of any entity, including the debtors or the purchasers, to comply with environmental laws. Nothing in this order or in any asset sale agreement entered into pursuant to this order authorizes the transfer to the purchaser of any licenses, permits, registrations, or governmental authorizations and approvals without the purchaser’s compliance with all applicable legal requirements under non-bankruptcy law governing such transfers.”

The objections came a day after Hostess reached agreements with Thomasville, Ga.-based Flowers Foods Inc., which is set to buy brands including Wonder for about $360 million, and Mexico City-based Grupo Bimbo S.A.B. de C.V., which outbid Flowers for the right to buy Hostess’ Beefsteak brand for about $31.9 million.
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