A California bankruptcy judge has rejected the Office of the U.S. Trustee's second attempt to dismis

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A California bankruptcy judge has rejected the Office of the U.S. Trustee's second attempt to dismiss the Chapter 11 case of cannabis company The Hacienda Co., saying the watchdog's claims that the case is a conspiracy to pay creditors using funds from criminal activity shouldn't prevent Hacienda from using bankruptcy to liquidate assets.

U.S. Bankruptcy Judge Neil W. Bason said in an opinion filed Wednesday that the Office of the U.S. Trustee's argument belies the fact that federal law doesn't restrict companies engaged in illegal activity from making payments to legitimate creditors. Even if Hacienda is engaged in post-petition criminal activity — which it may not be — that doesn't make it appropriate to dismiss the bankruptcy case, Judge Bason's denial of the dismissal request says.

"It would be odd to read the Bankruptcy Code as implicitly barring any payments to legitimate creditors when that is what federal criminal law itself provides," Judge Bason said.