A bankruptcy court should deny Westmoreland Coal Co.'s request to employ management consulting firm McKinsey Recovery & Transformation Services U.S. LLC during its Chapter 11 proceedings because McKinsey "patently lacks disinterestedness," a U.S. trustee recommended.
Henry Hobbs Jr., the acting U.S. trustee for the southern and western districts of Texas, said in a Dec. 14 filing that McKinsey's application withheld critical details about its connections to interested parties, including one that generates 17.5% of McKinsey's gross annual revenue. The firm also failed to complete a conflicts check for hundreds of interested parties and is in violation of the U.S. bankruptcy code's disinterested person requirement because it holds a $96,000 claim against Westmoreland, Hobbs wrote.
The U.S. Bankruptcy Court for the Southern District of Texas, which is handling Westmoreland's bankruptcy, requested the trustee's recommendation after a rival consulting firm challenged Westmoreland's application.
A McKinsey spokesperson said in a Dec. 18 statement that the company stands behind its disclosure practices and continues to "believe they are completely in line with the law." McKinsey will present "relevant evidence" at a Jan. 28 hearing on the case.
"We have consistently been responsive to guidance from the US Trustee and have followed the disclosure protocol that they previously approved," the spokesperson said. "As the US Trustee acknowledges, we intend, as we have in other cases where we were found disinterested, to supplement our filings as we complete our analysis."
Hobbs previously filed an objection to Westmoreland's disclosure statement, saying it lacked adequate information.
Union objects to retention plan
The United Mine Workers of America, or UMWA, filed another objection in Westmoreland's bankruptcy proceedings, this time calling the company's proposed employee retention plan "unfair and discriminatory."
Westmoreland filed for Chapter 11 bankruptcy protection in October and is seeking court approval to pay about $1.5 million quarterly to retain 243 of its "valued employees," according to the proposed plan, which was filed Nov. 26.
The union, which represents about a quarter of Westmoreland's 1,700 employees, wrote in a Dec. 14 filing that the plan "is designed to provide extraordinary bonuses to management-level employees only and is not tailored to debtors' purported goal to keep its critical workforce intact until the proposed sale process is complete."
"A plan focused primarily on management employees ignores the operational side of running the mines," the union wrote, suggesting it was designed "to discriminate against represented employees."
Phil Smith, spokesman for the UMWA, said in an email that Westmoreland's plan "follows the same playbook" that other coal producers used during their bankruptcy proceedings, citing Patriot Coal Corp., Walter Energy Inc. and Alpha Natural Resources Inc.
"The truth is that these companies use the bankruptcy system to enrich corporate executives at the expense of workers and retirees," Smith said. "It is yet another legal scheme to transfer wealth to the already-wealthy while leaving working families further behind."
The UMWA is also suing Westmoreland to protect miners' pensions during the proceedings.
Westmoreland declined to comment on the U.S. trustee's recommendation or the union's objection.