absolute priority rule

The Absolute Priority Rule is a principle used in bankruptcy and restructuring that dictates the order in which creditors and stakeholders are paid. It states that higher-ranking creditors must be paid in full before lower-ranking creditors receive anything. For example, secured creditors, like banks holding collateral, are paid first, followed by unsecured creditors, like suppliers or bondholders. If there are remaining assets after senior creditors are satisfied, those can be distributed to shareholders. This rule ensures fairness in the distribution of assets during the financial restructuring of a company, as it protects the rights of higher-priority claims.