Consulting giant McKinsey & Co. is reportedly closing down its bankruptcy practice, as the firm faces multiple lawsuits and government investigations related to its advisory work for distressed borrowers. According to insiders, some McKinsey partners who previously focused on bankruptcy advisory work in the firm’s Recovery and Transformation Services (RTS) division have either left the company or transitioned to other areas.
The move comes after McKinsey’s bankruptcy practice drew scrutiny from regulators, following allegations that it gave conflicted advice to clients and profited from bankruptcy proceedings. In January 2021, McKinsey agreed to pay nearly $600 million to settle claims that it had failed to disclose potential conflicts of interest in its work advising opioid manufacturers, including Purdue Pharma.
The bankruptcy practice had been a significant part of McKinsey’s work in recent years, with the RTS division advising on several high-profile bankruptcy cases, including that of Puerto Rico’s government and energy company PG&E. However, the legal and reputational risks associated with the practice appear to have become too great for McKinsey to continue operating it.
McKinsey’s decision to wind down the bankruptcy practice could also reflect a broader shift in the consulting industry. As more companies seek to restructure outside of formal bankruptcy proceedings, there may be less demand for the kind of advisory work that McKinsey’s RTS division offered. Instead, consulting firms may need to focus on helping clients navigate other forms of financial distress, such as debt restructuring and operational turnaround.
Despite the challenges facing the bankruptcy practice, McKinsey remains one of the world’s largest and most influential consulting firms. The company advises clients across a wide range of industries, from technology and finance to healthcare and energy. However, the fallout from the bankruptcy practice may force McKinsey to rethink its approach to advising clients in difficult situations and to strengthen its compliance and risk management practices.