Unsecured creditors often lose in bankruptcy — new advocacy model aims to change the outcome

When companies file for Chapter 11 bankruptcy, the process is often framed as a balanced restructuring designed to protect all stakeholders. In practice, unsecured creditors — vendors, landlords, service providers, and small businesses — frequently recover little or nothing. Olympus Guardians is working to change that narrative by educating and organizing unsecured creditors around one of the most underutilized tools in bankruptcy: the Official Committee of Unsecured Creditors.

Unsecured creditors typically make up the largest stakeholder group in a Chapter 11 case by number and often represent significant collective value. Yet without coordinated representation, their interests are easily overshadowed by secured lenders and other senior parties that control financing, timelines, and restructuring outcomes.

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“The biggest myth in Chapter 11 is that unsecured creditors are powerless,” said Arian Eghbali, founder of Olympus Guardians. “The law already provides a mechanism for meaningful representation. The problem is that many creditors don’t know it exists or assume it’s too expensive or complicated to pursue.”

Under the US Bankruptcy Code, once a Committee of Unsecured Creditors is formed, the committee is entitled to retain legal and financial advisors whose fees are paid by the bankruptcy estate — not by individual creditors. This allows unsecured creditors to access sophisticated representation without out-of-pocket legal spend, often at no cost beyond time and engagement.

Committees play a critical role in Chapter 11 cases. They receive access to financial information, participate in negotiations, review debtor-in-possession financing, influence asset sales, and investigate prepetition transactions and insider conduct. When no committee is formed, secured creditors and debtors often dominate the process, resulting in predictably low recoveries for unsecured stakeholders.

Olympus Guardians focuses exclusively on advocating for unsecured creditors, particularly small and medium-sized businesses that lack the resources to hire large law firms on their own. By lowering the knowledge and coordination barrier, the firm helps creditors participate effectively in the bankruptcy process and assert their rights.

Eghbali has advised unsecured creditors and committees in numerous high-profile Chapter 11 cases, including Virgin Orbit, Forever 21, JOANN Stores, Hooters, and Powin Energy, among others.

“Bankruptcy is procedural,” Eghbali added. “And procedure favors those who show up organized, informed, and represented. Committees aren’t about obstruction — they’re about balance.”

As Chapter 11 filings continue across industries, Olympus Guardians is calling on unsecured creditors to recognize the leverage they already have — and to use it.

Khaleej Times Staff

webteam@khaleejtimes.com