McKinsey waives millions in fees for work on Westmoreland Coal bankruptcy

Consulting firm McKinsey & Company has agreed to waive the fees for its work on the Westmoreland Coal bankruptcy, settling a nearly two-year mediation with the US Trustee Program (USTP). Part of the Department of Justice, the USTP works to protect the integrity of the country’s bankruptcy system and enforce bankruptcy laws.

The USTP started the mediation with McKinsey in 2019 after noting that the consulting firm withheld “critical details” about connections to parties with a potential economic interest in the $1.4 billion Westmoreland bankruptcy case.

Westmoreland Coal emerged from Chapter 11 in June 2019. McKinsey, however, will forgo its fees for the advisory work performed, which the watchdog estimates at millions of dollars.

McKinsey has been accused of habitually failing to disclose potential conflicts of interests – including listing any recent clients that may be connected to a bankruptcy case the firm is working on. A prominent accuser is Jay Alix, the retired founder of turnaround and restructuring specialist AlixPartners, who has been suing the firm for failing to disclose financial interests in its restructuring work. McKinsey claims Alix is simply trying to harass a competitor and muscle them out of the restructuring arena.

The USTP settlement, however, won’t end Alix’s ongoing litigation, or the USTP’s ongoing review of McKinsey’s disclosure practices.

Aside from the fee waiver, McKinsey also agreed to file court papers that list any recent clients that may have connections to a reorganization case – a standard requirement of the US Bankruptcy Code.

“McKinsey has for the first time agreed that it will fully disclose all affiliate connections and all confidential client connections in any bankruptcy case in which it seeks to be retained in the future, unless the bankruptcy court orders otherwise,” said a USTP statement on the settlement, which was announced on Thursday.

This is big news for McKinsey, which is famously tight-lipped about its client roster and activities. The firm said that the deal will supplement a new disclosure protocol it formulated last year.

In an earlier case with the USTP in February 2019, McKinsey agreed to pay $15 million to settle allegations the company failed to disclose potential conflicts in the Westmoreland bankruptcy and two other cases.