ABSOLUTE PRIORITY

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.

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. Specifically, the usual order is: first, administrative claims; second, statutory priority claims such as tax claims, rent claims, consumer deposits, and unpaid wages and benefits from before the filing; third, secured creditors' claims; fourth, unsecured creditors' claims and fifth, equity claims (Glossary of Common Bankruptcy Terms)

United Glossary of Bankruptcy Terms2012.