McKinsey has reached an amended settlement with the US Trustee Program (USTP) over its disclosures while serving as an advisor in bankruptcy.
Under the settlement, filed on the docket of the Westmoreland Coal Company Chapter 11 case, McKinsey agrees that its future bankruptcy disclosures “will include, but will not be limited to, disclosures of affiliate connections and disclosures of confidential client connections.” The USTP would drop any claims that McKinsey “failed to make full and complete disclosures” in prior bankruptcy cases and McKinsey would release any potential claims it has against the USTP.
McKinsey has also agreed to withdraw its second retention application, though the settlement does not indicate whether the firm will be paid for its work in the otherwise long-completed reorganization of Westmoreland.
“Although the US Trustee Program continues to review McKinsey’s practices with respect to its [McKinsey Investment Office] investment affiliates, the facts to date provide a sufficient basis for the UST to make this settlement resolving disputes with McKinsey in the Westmoreland case,” the USTP said in the settlement.
The deal does not include Mar-Bow Value Partners, which has requested additional time to decide whether it will rejoin mediation between McKinsey and the USTP.
The amended deal is the latest step in a saga that has spanned four-and-a-half years. Jay Alix, founder of advisory giant AlixPartners, has used his Mar-Bow vehicle to pursue claims against McKinsey Recovery & Transformation Services (RTS) in several bankruptcy cases since June 2016, claiming that the firm habitually and knowingly conceals conflicts of interest while serving as an advisor in Chapter 11.
Mar-Bow’s efforts attracted the attention of the USTP, which had its own problems with RTS’ alleged lack of disclosure. RTS settled with the USTP in early 2019, securing court approval from a three-judge panel in April 2019 to pay out USD 5m each to pay creditors in the Chapter 11 cases of Westmoreland Coal Company, Alpha Natural Resources and SunEdison.
But in August 2019, the USTP filed an objection to RTS’ second retention application in the case of Westmoreland, saying the disclosures are “incomplete, inadequate and, in some areas, raise questions.” Mar-Bow has never let up in its pursuit of claims against RTS, and the parties went to trial in February 2020 but the dispute has been tabled for the better part of the year due to the coronavirus pandemic.
The amended settlement between RTS and the USTP resolves those parties’ remaining issues.
In addition to Westmoreland, Alpha and SunEdison, Mar-Bow has pursued claims against RTS in the Chapter 11 cases of NII Holdings and The Standard Register Company, along with a lawsuit in New York district court, typically getting shut out for lack of standing. In addition to the USTP settlement, RTS previously agreed to pay USD 17.5m to SunEdison’s litigation trust to resolve disclosure issues in that case.
by Pat Holohan