Absolute Priority Rule

absolute priority rule

The principle that senior creditors are paid in full prior to any payment being made to junior creditors, and that all creditors have seniority to equity holders.

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Absolute Priority Rule

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.