McKinsey & Company has spent months fighting in court over how it should disclose potential conflicts of interest when it advises bankrupt companies. The powerful consulting firm has defended itself by arguing that federal disclosure rules are so vague and confusing that almost no one can agree on how to comply.

But for years McKinsey has had a 57-page primer — titled “Bankruptcy 101” — that lays out how to identify possible conflicts and make proper disclosures. The only problem: McKinsey hasn’t been following its own instruction manual.

“It is critical that the disclosure rules and guidelines in these materials be followed,” the document says. It adds, “Failure to adequately disclose material connections may result in severe penalties and fines.”

That’s precisely the situation McKinsey now finds itself in. The court battles have already cost McKinsey millions of dollars in penalties, and risk costing it millions more.

The disclosure rules are intended to protect the integrity of the bankruptcy courts, where valuable corporate assets and vast sums of cash regularly change hands, by safeguarding against secret deals. They allow regulators to make sure that the advisers retained by bankrupt companies are not improperly favoring one creditor or bidder over others.

The rules are also at the heart of a multijurisdictional court fight involving McKinsey, a retired turnaround expert named Jay Alix and the Justice Department over what, exactly, the firm must disclose.

Gary Pinkus, McKinsey’s chairman for North America, said in a statement that “Bankruptcy 101” was a “confidential and proprietary internal training document that provides a high-level overview of the entire arc of a typical Chapter 11 retention, for those unfamiliar with the bankruptcy process.”

Mr. Pinkus added that the manual demonstrated that McKinsey “has always been concerned about compliance with respect to its Chapter 11 work and, as we have consistently said, takes its obligations under the bankruptcy rules seriously.”

He also challenged the assertion that McKinsey had not adhered to the disclosure rules of bankruptcy, saying, “No court has ever made such a finding.”

Since reaching a $15 million settlement with the Justice Department in February over what the government called its “pervasive disclosure deficiencies,” McKinsey has promised to improve its procedures. It has even told a federal judge that it should be permitted to write a new disclosure protocol for the entire advisory community, to help clarify rules that McKinsey argues are ambiguous.

McKinsey’s previously unreported internal primer — a copy of which was reviewed by The New York Times — was written in 2013. At the time, McKinsey was building up a new bankruptcy advisory practice. It walks employees through the essentials of getting hired by a bankrupt client, querying “all partners” and “all firm members” about possible conflicts, submitting bills for court approval, and tracking expenses (meals while traveling are reimbursable, minibar expenses are not). When recording billable hours, it advises: “Never write anything that you don’t want to show up in The Wall Street Journal.”

The document’s authors were four employees with ample experience in the fine points of bankruptcy and what could lie in wait for the unwary. Two had worked at the restructuring firm founded by Mr. Alix. Another had worked at two law firms with substantial Chapter 11 practices. The fourth had worked at Milbank, Tweed, Hadley & McCloy, a white-shoe firm that became famous in bankruptcy circles for a case in which a partner served prison time for failing to disclose a conflict of interest.

“Is there reputational risk or media attention?” asks the manual in a list of issues to present to an internal oversight committee.

Robust disclosures are important because bankruptcy advisers like McKinsey have a substantial say in how a case turns out. They help determine how much the various creditors are paid and how a bankrupt business is broken apart, sold off or reorganized into something new. A key requirement for such advisers is that they be “disinterested” in the cases they work on.

The manual’s authors defined the term much the way the law does: Advisers can’t be a creditor, a shareholder or an insider of the bankrupt company. Nor can they “have an interest materially adverse to the interest of the estate,” meaning the court-controlled assets that will be used to repay creditors.

Truthful disclosures are supposed to give the courts, the parties and the government an understanding of the connections each professional brings to a case. Merely having connections is not disqualifying. But the connections have to be disclosed, in enough detail to permit the Justice Department to determine if they are relevant. McKinsey’s handbook said that includes both “direct” and “indirect” interests in the bankrupt company and its creditors.

McKinsey has a number of such interests. Its $25 billion hedge fund, MIO Partners, manages money for thousands of McKinsey employees, retirees and alumni. McKinsey has said the fund is independently managed and has no conflicts of interest, but nine of its 11 board members, who oversee the investments, are current or past McKinsey partners. According to government filings, the fund often invests in distressed debt — the same market the bankruptcy-advisory unit serves.

In announcing its settlement with McKinsey in February, the Office of the United States Trustee specifically mentioned McKinsey’s investments, saying the firm “lacked candor regarding its investments in entities that could create a conflict of interest.” It warned of “more far-reaching remedies” if McKinsey continued to provide inadequate disclosures.

“I don’t know that they’re intentionally crossing these lines, or if they have just gotten into so many different aspects of the business that they’re tripping over the lines,” said Larry Friedman, who led the Office of the United States Trustee from 2002 to 2005.

McKinsey’s disclosure practices had not been a major issue until Mr. Alix decided to raise them in a number of bankruptcies — including Westmoreland Coal in Houston, Alpha Natural Resources in Virginia, Standard Register in Delaware, and SunEdison in New York. He has accused McKinsey of not only failing to follow the law, but perhaps using its lack of disclosures to hide nefarious activities, and filed a complaint under the Racketeer Influenced and Corrupt Organizations Act.

McKinsey has said Mr. Alix is trying to undercut the firm’s competitive position in order to help AlixPartners, the restructuring firm that he founded in 1981. Mr. Alix is retired, but he sits on the firm’s board and holds about a third of its stock.

The consulting firm also says that Mr. Alix’s interpretation of the disclosure rules is extreme. “If applied nationwide,” it “would run all sort of professionals out of the business,” a lawyer for McKinsey, Zack A. Clement, told Judge David R. Jones, the judge overseeing the Westmoreland Coal bankruptcy.

In its arguments, McKinsey has said there should be limits on what connections must be disclosed, so firms don’t have to bother with listing connections to smaller clients, those they haven’t done business with lately, or that are not “direct commercial relationships.” For example, McKinsey’s lawyers have argued that the firm employs a two-year “look-back period” when searching for connections to disclose.

Judge Jones told McKinsey that it could present a new industry disclosure protocol to the court. But he warned McKinsey that, new protocol or not, it must still comply with the law.

The law is written broadly, requiring disclosure of “all of the person’s connections with the debtor, creditors, any other party in interest” and more. The breadth of that language means law firms will disclose that a newly hired associate once clerked for the judge, or that some of their clients’ legal bills have been paid by insurers that also insure the bankrupt company.

Previous attempts to narrow the disclosure requirements haven’t succeeded. A 2016 proposal to reduce professionals’ disclosure obligations was rejected by the Advisory Committee on Rules of Bankruptcy Procedure, a specialized body that researches possible changes for the system.

McKinsey’s “Bankruptcy 101” manual does not mention disclosure limitations, either. In fact, it suggests that it is better to err on the side of caution.

“In representing a bankrupt company,” the guide says, “we must avoid conflicts of interest and the appearance of conflicts of interest.”

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