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Judges order mediation for claims against McKinsey in Alpha, Westmoreland cases

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Judges order mediation for claims against McKinsey in Alpha, Westmoreland cases

U.S. bankruptcy judges in Texas and Virginia ordered a joint mediation to address claims that a management consulting firm involved in two coal companies' Chapter 11 proceedings has conflicts of interest.

The Virginia judge had granted a request by Jay Alix, founder of AlixPartners restructuring firm, to reopen the Chapter 11 proceedings of Alpha Natural Resources Inc. after Alix alleged that Alpha's bankruptcy consultant, McKinsey & Co., failed to disclose an investment in the coal producer.

Westmoreland Coal Co., which filed for Chapter 11 reorganization in October 2018, is seeking approval from a Texas bankruptcy court to employ McKinsey through its own proceedings. U.S. trustee Henry Hobbs Jr. recommended that the court reject the request, saying McKinsey "patently lacks disinterestedness."

In a Jan. 16 order, Judges David Jones and Kevin Huennekens directed Westmoreland, Alix-owned Mar-Bow Value Partners LLC and McKinsey subsidiary McKinsey Recovery & Transformation Services U.S. LLC to take part in a mediation conducted by Judge Marvin Isgur in Houston. They did not set a date for the mediation.

A McKinsey spokesperson said in a Jan. 15 statement that the Virginia court ordered the unsealing of certain disclosures made privately in the Alpha case, but the issue still needs to be litigated in the Westmoreland case. McKinsey also said it located the transmitted email "showing we made all required disclosures" to the trustee, something it will confirm in a filed response to the official.

"We will promptly comply with the court's directive to begin mediation," the spokesperson said. "As we told the court [on Jan. 15], however, if these matters are not resolved expeditiously, we will move for an immediate trial to clear our name and prove that Alix's fraud allegations are false and defamatory. We remain steadfast in our view that McKinsey RTS complied with all of the duties imposed upon bankruptcy professionals."

Mar-Bow declined to comment, and Westmoreland had not responded to a request for comment as of this article's publication.