(Bloomberg) -- McKinsey & Co. will forfeit millions of dollars in fees for helping Westmoreland Coal Co. navigate bankruptcy under a deal with federal officials who have been investigating whether the global consulting company hid potential conflicts of interest.
The agreement Thursday is the latest settlement between McKinsey and the Office of the U.S. Trustee, which monitors corporate bankruptcies. The deal doesn’t end the office’s review of McKinsey’s disclosure practices with respect to its investment affiliates, or resolve a long-running feud with retired restructuring guru Jay Alix.
Alix and the U.S. Trustee have repeatedly criticized McKinsey for failing to list potential conflicts of interest it may have while working on bankruptcy cases. Under the U.S. Bankruptcy Code, advisers like McKinsey must file court papers publicly listing any recent clients who may have connections to a reorganization case.
“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,” the U.S. Trustee said in statement.
McKinsey, which fights to keep much of its consulting work confidential, was scheduled to resume a trial in Houston over its request for fees in the Westmoreland case.
Mediation Deal
The company said the settlement was brokered in mediation with U.S. Bankruptcy Judge Marvin Isgur in Houston.
“We look forward to working productively with the U.S. Trustee and courts as we continue to support clients in Chapter 11 bankruptcy,” McKinsey’s North America Chairman Gary Pinkus said in an emailed statement.
McKinsey said it will rely on an internal protocol it developed during the fight over its fees to guide its future disclosures.
Alix said in a statement that he will keep pressing his case against McKinsey at the court hearing scheduled for next month. But now that McKinsey has dropped its fee application, U.S. Bankruptcy Judge David Jones could decide to cancel the showdown.
“In forfeiting its fees, McKinsey recognized that a professional who violates bankruptcy disclosure laws cannot profit from its misconduct,” Alix said in the emailed statement. “When finally forced to conform its conduct to the same set of laws as every other bankruptcy professional, McKinsey quit.”
The company has defended itself in part by claiming that Alix really just wants to force it out of the bankruptcy consulting business. Alix founded one of the premier restructuring advisories in the U.S., AlixPartners. He retired several years ago and no longer plays an active role in the company.
“It is unfortunate, but not surprising, that Jay Alix has chosen not to participate in this settlement,” McKinsey said in its statement.
The U.S. Trustee previously collected $15 million from McKinsey to settle allegations the company didn’t disclose potential conflicts in Westmoreland and two other cases.
At the start of a trial earlier this year, McKinsey said it had spent tens of millions of dollars fighting allegations that it flouts court disclosure rules.
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