Rule of Absolute Priority

Rule of Absolute Priority

A condition of bankruptcy proceedings under which junior (subordinated) claim holders can receive no payment until senior (priority) claim holders are paid in full.

Absolute Priority

A rule stating that, in liquidation, certain creditors must be satisfied in full before any other creditors receive any payments. That is, in the liquidation of a company, the absolute priority rule states that holders of secured debt must be paid before holders of unsecured debt. Holders of unsecured debt have precedence over preferred shareholders, and, finally, preferred shareholders must be satisfied before common shareholders.
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