Absolute Priority

A rule that stipulates the order of payment - creditors before shareholders - in the event of liquidation. The absolute priority rule is used in bankruptcies to decide what portion of payment will be received by which participants. Debts to creditors will be paid first and shareholders (partial owners) divide what remains.

Regarding the estate of a deceased person, the absolute priority rule will ensure payment of outstanding debts before the distribution to beneficiaries.

Also known as "liquidation preference".

Absolute priority specifies the pecking order. Senior creditors always get first grabs at the proceeds from liquidation, and shareholders are the last to get paid. This rule provides a degree of protection to creditors in the event of insolvency or death. The division of benefits (cash) is not always the result of a bankruptcy. It can also occur due to the liquidation of assets in order to pay down a company's liabilities.

In estate cases if the resources of the estate are insufficient to pay off the debts, assets will need to be liquidated to handle the obligations.


Investment dictionary. . 2012.

Look at other dictionaries:

  • absolute priority — the order of payment to the different classes of creditors mandated by the Bankruptcy Code. Claimants with higher priority are paid in full before other claims receive anything. Junior creditors and shareholders are paid after senior creditors.… …   Glossary of Bankruptcy

  • Absolute priority — Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full before junior creditors receive any payment. The New York Times Financial Glossary …   Financial and business terms

  • absolute priority — Rule in bankruptcy proceedings requiring senior creditors to be paid in full before junior creditors receive any payment. Bloomberg Financial Dictionary …   Financial and business terms

  • absolute priority rule — n: a rule that provides for the satisfaction in full of claims of senior creditors before any payments can be made to junior creditors under a chapter 11 bankruptcy plan Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. absolute… …   Law dictionary

  • absolute priority rule — In a Chapter 11 Plan, the debtor in possession must completely satisfy the claims of a higher, dissenting class before the claims of classes lower in priority can participate in the reorganization. Thus, a corporate debtor s shareholders cannot… …   Glossary of Bankruptcy

  • absolute priority rule — principle that creditor s demands outweigh shareholder s demands for payment in the event of a company s liquidation (Economics) …   English contemporary dictionary

  • 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. Bloomberg Financial Dictionary …   Financial and business terms

  • priority — priority, precedence can both mean the act, the fact, or, especially, the right of preceding another. When the reference is to the right, both terms usually imply an established or accepted code that determines which shall precede the other.… …   New Dictionary of Synonyms

  • Absolute configuration — (or group) and its stereochemical description e.g. R or S. [GoldBookRef|title=absolute configuration|url=http://goldbook.iupac.org/A00020.html] Absolute configurations for chiral molecules are traditionally obtained by X ray crystallography but… …   Wikipedia

  • Relativity priority dispute — Albert Einstein presented the theories of Special Relativity and General Relativity in groundbreaking publications that either contained no formal references to previous literature, or referred only to a small number of his predecessors for… …   Wikipedia

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