absolute priority rule


Also found in: Acronyms.

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.

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.
References in periodicals archive ?
(4) A number of scholars have written about the evolution of the absolute priority rule. See, e.g., John D.
Roenfeldt, "Security Pricing and Deviations from the Absolute Priority Rule in Bankruptcy Proceedings," Journal of Finance (December 1990), pp.
Part I examines the origin of the absolute priority rule from its beginnings in railroad bankruptcy to its current codification in the Code.(12) Part II traces the historical development of the new value exception from its origins in Case v.
Again, GM and Chrysler's failure was economically, and politically, untenable, but in reworking the companies outside of established law, the government's intervention in these two cases framed a conflict between the absolute priority rule and the reality that strict adherence to that rule might not work for the best.
The absolute priority rule in Chapter 11 provides that the shareholders (or any junior class of creditors) may not retain any interest or receive any distribution unless a more senior class is either paid in full or consents.
Under the Bankruptcy Act, a plan which permitted the debtor's stockholders to receive stock in the reorganized debtor in exchange for contributions of added capital could under certain conditions satisfy the absolute priority rule and be considered "fair and equitable" even though a senior class was not paid in full.
Since under the proposed plan the Creditor was not actually offered 100 cents on the dollar, yet provided that the Debtor would retain certain property, the Ninth Circuit found the absolute priority rule was violated.
Strict adherence to the Absolute Priority Rule is not the goal of Chapter 11.
Anyone with an internet connection now can learn how the firm's attorneys think about disgorgement ("The word that strikes knee-knocking terror in the minds and hearts of bankruptcy professionals"), a 105 injunction ("The last (and often the first) refuge of a scoundrel"), a 2004 examination ("Synonym: fishing expedition"), the absolute priority rule ("The Hammer of the (Unsecured Creditor) Gods"), and the United States Trustee ("The hall monitor of the bankruptcy process").
traditionalists, on the other hand, the absolute priority rule lacks
to the absolute priority rule, (27) even though none of the Supreme
at 100-01 ("[A]lthough Congress did soften the absolute priority rule in some ways, it did not create any exception for 'gifts' like the one at issue here").