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Congress took a major step yesterday toward enacting bipartisan legislation that would require McKinsey & Co. and other firms and professionals steering Puerto Rico through bankruptcy to disclose potential conflicts of interest, WSJ Pro Bankruptcy reported. A Senate committee with jurisdiction over Puerto Rico passed a bill to require lawyers, accountants, consultants and other professionals hired by Puerto Rico to disclose connections they have with the U.S. territory, its creditors or others employed to work on the debt restructuring. A companion version of the disclosure bill unanimously passed the House in February. Prior versions of the legislation had stalled in the same Senate committee. Lawmakers first proposed imposing the disclosure rules for Puerto Rico’s advisers in 2019 following media reports about potential conflicts of interest involving consulting giant McKinsey, a top adviser to the oversight board supervising Puerto Rico’s finances. McKinsey has also worked as an adviser in large corporate bankruptcy cases. The New York Times in 2018 reported McKinsey owned at least $20 million in Puerto Rico public debt through an investment affiliate while advising the oversight board. A Wall Street Journal investigation found McKinsey routinely disclosed far fewer names and descriptions of connections than other advisers working on corporate bankruptcies and that its investment unit held undisclosed financial stakes that gave it a direct interest in the outcome of bankruptcy cases it worked on. Following the press reports, the oversight board hired a law firm to investigate potential conflicts involving McKinsey, concluding in a 2019 report that it had mitigated potential conflicts because it “effectively walled off” its consulting business from its investment unit. The new disclosure requirements passed by the Senate Energy and Natural Resources Committee mirror rules that are already imposed on advisers working on corporate bankruptcies. Advisers hired by a bankrupt company are required to publicly disclose connections they have to the debtor, creditors or other parties so that a judge, the U.S. Justice Department or others involved in a chapter 11 case can ensure advice they give isn’t tainted by a potential financial conflict.

A lawyer for sex abuse survivors in the Boy Scouts of America's bankruptcy said yesterday that two attorneys for the official committee representing survivors' interests in the case should be disqualified after the committee sent an "inflammatory" email about the BSA's proposed reorganization plan and sex abuse litigation settlement, Reuters reported. Ken Rothweiler of Eisenberg, Rothweiler, Winkler, Eisenberg & Jeck claimed during a virtual hearing before U.S. Bankruptcy Judge Laurie Selber Silverstein that James Stang and John Lucas of Pachulski Stang Ziehl & Jones, who represent the official committee, knew the email was inappropriate but allowed it to be sent to thousands of survivors anyway. Rothweiler told the judge during the hearing that the email, which encouraged the survivors to vote against the plan, has tainted the voting process. Sex abuse claimants have until Dec. 14 to submit votes on the plan, which would establish a trust to compensate men who say they were sexually abused as children by troop leaders. The trust currently has around $1.887 billion available for survivors. The plan is supported by one large survivor group that Rothweiler works with. However, the official committee opposes the deal, saying that the amount being offered to more than 80,000 abuse claimants is too low. The committee sent an email on Nov. 6 to around 20,000 survivors that included a letter from plaintiffs’ attorney Tim Kosnoff, who is not part of the committee. The Boy Scouts say the letter contained false and defamatory statements. Additionally, the letter directed readers to Kosnoff’s Twitter account, where he has attacked Rothweiler, among others involved in the bankruptcy.

A bankruptcy judge threatened to jail a Manhattan real estate lawyer if he doesn’t promptly provide a list of creditors and detailed financial information about his failed law firm and the $17 million it allegedly owes its clients, WSJ Pro Bankruptcy reported. Judge David Jones of the U.S. Bankruptcy Court in Manhattan said anything short of incarceration wouldn’t be enough to ensure that lawyer Mitchell Kossoff produce details on assets, contracts and leases at his law firm that would make it possible to hold a meeting of creditors. Earlier this month, the trustee liquidating Mr. Kossoff’s namesake law firm asked that Mr. Kossoff be held in civil contempt for violating disclosure orders to provide a client list and schedules. On Tuesday, the judge did so. Allowing more time and “wrangling” between Mr. Kossoff and the trustee is unlikely to be successful in securing his compliance, the judge said. Judge Jones cited an “extensive pattern of delay” by Mr. Kossoff, who is the subject of a criminal investigation by the Manhattan district attorney’s office. The judge said he didn’t envision issuing an order for Mr. Kossoff’s arrest for at least seven days. “I hope he is never incarcerated,” Judge Jones said. “I hope he complies with the court order.”

Lawyers for the Boy Scouts of America are scrambling to mitigate potential damage they say was caused by an “inflammatory” email sent to thousands of men who say they were sexually abused by troop leaders ahead of a key deadline in the youth organization’s bankruptcy, Reuters reported. U.S. Bankruptcy Judge Laurie Selber Silverstein in Delaware said during a virtual hearing on Friday that she thinks the email distributed by lawyers for the official committee representing survivors in the bankruptcy may constitute "a breach of professional ethics." The email, authored by plaintiffs’ lawyer Tim Kosnoff, urged survivors to vote against the Boy Scouts of America (BSA) reorganization plan, which rests on a proposed settlement of more than 80,000 sex abuse claims. It also included what BSA described as attacks on other lawyers in the case and inaccurate statements about the plan. BSA's lawyers said the email could have “disastrous effects” by confusing survivors and tainting their votes on the plan, which are due Dec. 14. The organization needs the votes to settle the claims and exit bankruptcy.