INTERNATIONAL – McKinsey & Co, a consulting firm whose conduct in bankruptcy cases has already drawn the attention of two judges, was accused again of improperly receiving and concealing payments from a client on the verge of bankruptcy.
This raised the prospect that the judge overseeing the case could order the return of tens of millions of dollars in fees earned by the consulting company.
Signs that something could be wrong at the client company, SunEdison, began to surface after its board hired an outside firm to investigate unrelated employee claims that managers were misstating cash flows.
The outside company, FTI Consulting, described an email exchange between a McKinsey consultant and a SunEdison executive, discussing how McKinsey was going to be paid for the work it had already done for the company.
Ultimately, there was an agreement that McKinsey would not keep billing SunEdison itself – instead, it would call back its unpaid bills and redirect them to four solar-energy projects that SunEdison had set up for various customers. But there was a problem: McKinsey had not done any work for them.
“Acknowledge that this is not ideal,” the McKinsey partner wrote, adding that there had not been many options. “We should anticipate spirited opposition from some PMs that we will need to push through,” he added, in a reference to the project managers who would be asked to pay for consulting services they had not received.
The accusations against McKinsey were contained in a pleading filed on Tuesday in a US bankruptcy court in Manhattan by a SunEdison creditor who has made a series of accusations of misconduct against McKinsey.
The creditor, retired turnaround specialist Jay Alix, asserted to Judge Stuart Bernstein that McKinsey had used the four projects – whose financing was separate from that of SunEdison and would not be affected by the bankruptcy – to remove any risk of the court’s finding out that McKinsey pulled money out of the company just before it went bankrupt.
McKinsey “acted with intent to deceive the court and in a manner that was wilfully blind to the truth and was in reckless disregard of the truth,” Alix wrote.
Alix has already challenged McKinsey in Houston’s bankruptcy court, which handled two recent cases in which the companies were advised by McKinsey, and in the bankruptcy court in Richmond, Virginia, where the judge this month reopened the case of Alpha Natural Resources, also advised by McKinsey.
The judges in those cases recently took the unusual step of jointly ordering McKinsey and Alix to try to resolve their differences in mediation, as one last step before taking the matter to trial.
A spokesperson for McKinsey, asked about the new accusations, said: “Alix has no evidence for his reckless and defamatory fraud claims against McKinsey, in this or any of his other attacks on the firm. Now, he is attempting to disrupt yet another settled bankruptcy based on the same unsubstantiated allegations he has made over and over again.”
She said the firm had always conducted itself in compliance with the law. In the past, McKinsey has also said Alix was motivated by a desire to undercut its ability to compete with AlixPartners, a restructuring firm that he founded in the 1980s and in which he still holds a roughly 30 percent stake.
The timing of the email exchange found by FTI was important: It took place in February 2016, just two months before SunEdison was to declare bankruptcy. The four solar projects were not going to join SunEdison in the bankruptcy court, meaning they would be free to pay bills without the prior review and approval of the judge.
It also meant that the court would not know SunEdison still owed McKinsey money from before the bankruptcy, which could disqualify the firm as a turnaround adviser helping to decide how creditors would be repaid.
To make sure no one tries to remove assets before the court takes control, the bankruptcy code calls for a review of transactions within 90 days.
The pleading asked the court to disqualify the work McKinsey had done for SunEdison and to order McKinsey to disgorge at least $37 million (R514.3m) in fees.