Troubled textile giant Burlington Industries Inc was on Thursday told by a bankruptcy judge it's not allowed to pay Berkshire Hathaway Inc a $14 million break-up fee should Burlington sell substantially all of its assets to another entity.

Judge Randall Newsome's decision means Berkshire Hathaway, which has bid $579m plus the assumption of at least $50m in liabilities, to pull out of the deal at will, according to the terms of the asset purchase agreement.

But the ruling was good news Burlington's committee of unsecured creditors, which objected to the motion. The creditors' committee holds around 70 per cent of Burlington's $140m in unsecured debt, according to Wilbur Ross, chief executive of WL Ross, a private equity firm heading the committee.

He wants to fund a stand alone reorganisation plan in an effort to increase the distribution to unsecured creditors. "I cannot imagine a worse time to sell this company," Mr Ross said. "We believe (Burlington) is turning around and that there is a lot more value here."

"This is a decision governed solely by the law, not by what may happen to the debtor, not by expediency," said Judge Newsome.

"This is a tough situation. There has been testimony that the creditors are against the breakup fee. But on the other side, I have a $580m cash deal plus the assumption of post-petition trade debt, retiree health benefits, and covering the shortfall in pension plans. That's a lot of value to let walk away."

Burlington is now expected to seek court approval of the sale to Berkshire in April.