Posted by Huangan Pan.
Earlier this year, McKinsey & Company, a famous consulting firm, was accused because of its misdeeds in a previous bankruptcy case, which has increased the probability of which the judge could order McKinsey & Company to return tens of millions of dollars in fees. This accusation was raised by the bankruptcy case of SunEdison. In 2016, SunEdison filed for bankruptcy protection in United States Bankruptcy Court in Manhattan and employed McKinsey & Company as a bankruptcy consultant. However, FTI Consulting, an outside company that hired by the board of SunEdison, claimed that the managers of SunEdison were misstating cash flows, and described an email about how McKinsey was going to be paid between a McKinsey consultant and a SunEdison executive. Finally, an agreement will arrange these unpaid bills to four solar-energy projects that SunEdison set up for other customers instead of billing them from SunEdison itself. Jay Alix, a creditor of SunEdison, declared 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 finding out that McKinsey pulled money out of the company just before it went bankrupt” (Walsh 5).
In this case, McKinsey had not disclosed sufficient information about its relationship between SunEdison while acting as a creditor. At the same time, as a consulting company that was hired by SunEdison, they can easily reach an internal agreement with SunEdison in order to transfer the risk of bankruptcy because they can more easily access SunEdison’s internal business information and decision-making information than any other creditor. In response to this accusation, a spokeswoman for McKinsey said that “The firm had always conducted itself in compliance with the law. Mr. Alix was motivated by a desire to undercut its ability to compete with AlixPartners” (Walsh 9).
In my opinion, what McKinsey’s spokeswoman said seems reasonable. However, The Wall Street Journal’s survey found that McKinsey disclosed far fewer potential conflicts of benefit than other bankruptcy professionals. Hence, McKinsey still needs to give a sufficient disclosure in any case to compliance the bankruptcy law. In this case, McKinsey tries to shift its risk to another four solar-energy projects which were set by SunEdison. This kind of action obviously have violated the bankruptcy codes and undermined the rights of other creditors. “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 — and sometimes longer — of when the company files for bankruptcy” (Walsh 11). This means the court can order McKinsey to return consulting fees that SunEdison have paid and then, SunEdison needs to repay all creditors according to the priority of their claims. `
Huangan is an accounting major at the Stillman School of Business, Seton Hall University, Class of 2020.
Corrigan, Tom. “Justice Department Chides McKinsey in Another Bankruptcy Case.” The Wall Street Journal, Dow Jones & Company, 15 Dec. 2018, www.wsj.com/articles/justice-department-chides-mckinsey-in-another-bankruptcy-case-11544901946.
Walsh, Mary Williams. “McKinsey & Company Is Again Accused of Misdeeds in Bankruptcy Case.” The New York Times, The New York Times, 23 Jan. 2019, www.nytimes.com/2019/01/22/business/mckinsey-bankruptcy-sunedison.htmlhttp://www.nytimes.com/2019/01/22/business/mckinsey-bankruptcy-sunedison.html.
Article’s link: https://www.nytimes.com/2019/01/22/business/mckinsey-bankruptcy-sunedison.html