It is a rule that says the order of payment when a company liquidates its asset—creditors first before the shareholders. This rule is commonly used in bankruptcy to decide how much each participant will receive. As a rule, creditors will be the first priority then what’s left will be divided by the part-owners or the shareholders.
When it comes to the assets of a deceased person, the absolute priority rule states that creditors will be paid first before the distribution to the rightful beneficiaries.
It is another term for liquidation preference.
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