McKinsey to Close down its Bankruptcy Practice: Wall Street Journal

The Wall Street Journal recently reported that consulting firm McKinsey & Co. is planning to wind down its bankruptcy practice within its recovery and transformation services (RTS) division, according to sources familiar with the matter. The move comes after the firm has faced numerous lawsuits and government investigations concerning the division’s work.

According to the Journal’s sources, which were not publicly identified, some McKinsey partners who had been focused on bankruptcy advisory work within the RTS division have been either leaving the firm or pivoting to different work. A McKinsey spokesperson stated that while layoffs have been occurring among non-client-facing staff, it isn’t laying off consultants and is not shutting down RTS. “McKinsey RTS is a part of our broader transformation practice which continues to grow and serve clients around the globe,” said the spokesperson, who confirmed that the company isn’t currently performing any chapter 11 engagements.

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The wind-down is likely the result of years of lawsuits and government probes concerning its work in the bankruptcy space, including allegations that the firm failed to disclose potential conflicts of interest and protect against insider trading involving client firms. McKinsey paid $15 million in 2019 to settle a government investigation into its conflict of interest disclosures in bankruptcy court, and a further $18 million in 2021 to resolve the insider trading probe. The firm settled both investigations without admitting wrongdoing.

In recent years, McKinsey has advised companies like coal producer Alpha Natural Resources and California utility PG&E, as well as the financial-oversight board of Puerto Rico. Advisory services to organizations in need of financial restructuring can be highly profitable, and McKinsey has competed with firms like AlixPartners LLP, FTI Consulting Inc., and Alvarez & Marsal for multi-million dollar engagements. Jay Alix, the founder of AlixPartners, has filed suit against the firm, accusing it of hiding conflicts of interest from bankruptcy courts by making misleading disclosures, with the case still under litigation.

While McKinsey has yet to publicly confirm plans to wind down its bankruptcy work, doing so could help the firm avoid future probes and lawsuits and shore up its focus on what remains of its RTS division.