Encyclopedia of Law and Economics

2019 Edition
| Editors: Alain Marciano, Giovanni Battista Ramello

Absolute Priority

  • Alexander DilgerEmail author
Reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7753-2_76

Synonyms

Definition

Absolute priority is a rule by which different classes of creditors are paid in full one after another in a corporate insolvency and the owners are paid last if anything remains.

Explanation

Absolute priority means that in a corporate insolvency, different classes of creditors are paid one after another, while the (former) owners of an insolvent firm get the rest if anything remains after all creditors have been paid in full. Normally this means that the owners get nothing because otherwise the company would not be insolvent in the first place. Accordingly, absolute priority is not relevant for solvent companies because they pay everything they owe their creditors and the owners own the rest. If a company cannot pay everything it owes because its liabilities are higher than the value of all its assets, then it is insolvent and all its debts are due immediately. Following absolute priority the most senior creditors are paid first. If the value...

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Institute for Organisational EconomicsUniversity of MünsterMünsterGermany