What is ABSOLUTE PRIORITY RULE?

A legal concept indicating that if a public company DEFAULTS, shareholders are only entitled to recover their investments after creditors have been fully repaid. In most BANKRUPTCY cases shareholders receive little, if any, restitution since they are subordinate to all other claimholders. Absolute priority also extends to the broad category of creditors, where secured creditors receive payment before senior unsecured creditors, who receive payment before junior and subordinated creditors.

See also SUBORDINATION.

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