Bain Capital’s resurrection of collapsed airline Virgin Australia Holdings Ltd. faces mounting legal opposition as bondholders rally to derail the takeover and salvage some of their debt.

What started weeks ago as a long-shot challenge to Bain’s deal from two little-known investors in Asia has attracted the biggest names in finance. Now UBS Group AG, Deutsche Bank AG and other creditors holding A$800 million ($570 million) of Virgin Australia bonds support a plan to muscle out Bain and rescue the airline themselves, according to court filings.

Virgin Australia crumbled in April owing A$6.8 billion, and administrators at Deloitte fast-tracked a sale to Bain before the airline’s cash ran out. The private equity firm plans to cut a third of the workforce and scale back the fleet, but it hasn’t said how much creditors will receive.

With indebted airlines on the brink of collapse worldwide, the standoff in Australia shows that recoveries in one of the pandemic’s hardest-hit industries risk delay or even failure once creditors start picking through the remains. The corporate casualties are racking up from Thailand to the Americas, and include Virgin Atlantic Airways Ltd.

On Monday, Australia’s federal court will hear the bondholder group’s request to have Virgin Australia’s creditors vote on any offer, not just Bain’s. They also want more information on the airline from Deloitte to help finalize a rescue plan.

The bondholders are proposing swapping their debt for equity and injecting fresh funds into a reborn airline. In the best scenario, they’d claw back two-thirds of their original investment. The legal bid is led by Broad Peak Investment Advisers Pte. and Tor Investment Management (Hong Kong) Ltd., which together hold A$300 million of Virgin Australia notes.

Little Certainty

The Federal Court in Sydney last month said Deloitte’s “preference for one proposal does not justify the exclusion of all other proposals from consideration by the creditors.”

But Deloitte has said the sale to Bain is binding and no other offer can be considered or recommended to creditors, who are due to vote on the deal Sept. 4. A Deloitte spokesman declined to comment further before Monday’s hearing.

According to Bain, the bondholder group’s proposal is “not credible, nor capable of progressing.” In a statement, Bain accused Broad Peak and Tor of “trying to frustrate the administration process by creating as much noise and interference as possible.”

While the proposal from Broad Peak and Tor would see Virgin listed in Australia, the firms have left room for a negotiated settlement with Bain.

“We are sure bondholders and other creditors would welcome a serious, good faith discussion with Bain Capital to structure a solution that provides unsecured creditors the value that’s rightfully due to them,” the two firms said in a joint statement.