Absolute priority rule

The absolute priority rule, also known as the absolute priority rule, is a fundamental principle of US Chapter 11 law. It requires that senior creditors be paid in full before junior creditors or equity holders may receive any distribution.

This rule is significant in that it safeguards the statutory hierarchy of claims and prevents the owners of an enterprise from benefiting at the expense of its creditors. In Dutch practice, a comparable ranking is reflected in the Dutch Bankruptcy Act, under which the trustee must strictly observe statutory priorities in the distribution of the estate.

In restructurings, the rule ensures a fair and predictable allocation of assets, thereby strengthening the negotiating position of creditors.