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A federal appeals court revived a McKinsey & Co. critic’s lawsuit alleging the consulting giant concealed conflicts of interest to obtain lucrative appointments advising bankrupt companies at the expense of rival firms, WSJ Pro Bankruptcy reported. Yesterday’s ruling by the Second Circuit Court of Appeals in New York revived a racketeering lawsuit accusing McKinsey of submitting false and misleading statements in 13 bankruptcy cases to hide financial conflicts that could have disqualified the firm from being retained. Jay Alix, the retired founder of rival consultant AlixPartners LLP, should also be allowed to pursue allegations that McKinsey ran a pay-to-play scheme to rig the marketplace for bankruptcy assignments in its favor, according to the appeals court. The ruling reinstated Mr. Alix’s lawsuit after it was dismissed by a federal judge in 2019. A McKinsey representative said Wednesday that the decision “solely addresses technical pleading standards and not whether Mr. Alix’s claims are true.” He has waged a broader battle against McKinsey for years across multiple courts alleging the firm profited by misrepresenting conflicts of interest involving major clients. “To date, Mr. Alix has lost all six of his lawsuits against McKinsey, and we are confident the evidence will ultimately show that this lawsuit is similarly meritless,” McKinsey said Wednesday. Had McKinsey truthfully and timely disclosed its conflicts, the firm would have been disqualified from obtaining at least some of the assignments it received, according to Mr. Alix.

Sycamore, Ill., attorney Kevin Johnson (aka “K.O. Johnson”), was sentenced Wednesday to spend 2 years in federal prison for bankruptcy fraud, WTVO reported. Johnson was found guilty in August on four counts of bankruptcy fraud, one count of making a false entry in a document in a bankruptcy proceeding, one count of withholding records from the Bankruptcy Trustee, and one count of concealment of property consisting of account receivables belonging to the bankruptcy estate. Johnson’s sentence will be followed by two years of supervised release.

A federal judge in Virginia rejected a debt-repayment plan for the former owner of Ann Taylor, Lane Bryant and other retail brands, voiding the broad legal protections bestowed on its former top executives and adding to the growing backlash against such liability releases, WSJ Pro Bankruptcy reported. Judge David Novak of the U.S. District Court in Richmond, Va., ruled on an appeal Thursday that a bankruptcy court lacked constitutional authority to approve legal releases in the chapter 11 plan of Ascena Retail Group Inc. that would have extinguished shareholders’ legal claims over actions management took before the company went bankrupt in 2020. The breadth of legal protection for the former Ascena executives “can only be described as shocking,” Judge Novak said. The proposed liability release, he said, would have extinguished not just a pending shareholder lawsuit but “every conceivable claim — both federal and state claims for an unspecified time period stretching back to time immemorial.” The ruling marks the second time in two months that a federal judge has rejected the use of legal releases that shut down creditors’ claims against third parties to a bankruptcy case. Third-party releases have become increasingly common in chapter 11 but are facing greater scrutiny beyond the nation’s bankruptcy courts. In December, a federal judge in Manhattan voided similar releases covering the wealthy owners of OxyContin maker Purdue Pharma LP, using reasoning similar to Judge Novak’s. Purdue has filed an appeal seeking to reinstate its owners’ releases, an integral part of its planned emergence from chapter 11.