Priority of Claims
Corporate Credit Analysis glossary · Distressed Debt & Restructuring
Definition
The order in which creditor claims are paid from asset value in a liquidation or reorganisation: administrative expenses, secured claims (up to collateral value), priority unsecured (taxes, wages), general unsecured, subordinated, equity.
Priority of Claims in plain English
When a company collapses and its stuff is sold off, there's rarely enough money for everyone, so there's a strict pecking order for who gets paid first. Roughly: first the costs of running the bankruptcy itself, then lenders who had specific assets pledged to them (up to what that asset is worth), then certain protected claims like unpaid taxes and worker wages, then ordinary lenders with no collateral, then the deliberately "back-of-the-line" lenders, and dead last the shareholders who owned the company. Each level must be fully paid before a single dollar drips down to the next. It's like paying the most important bills first when money is tight — the folks at the bottom often get nothing.
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