Absolute Priority Rule

The principle of bankruptcy law requiring the claims ( www.practicallaw.com/4-382-3333) of a dissenting class of creditors must be paid in full before any class of creditors junior to such dissenting class may receive or retain any property in satisfaction of their claims. It prevents a plan of reorganization ( www.practicallaw.com/9-382-3694) from being crammed down ( www.practicallaw.com/8-382-3369) on unsecured creditors ( www.practicallaw.com/8-382-3897) unless stockholders, who are junior to unsecured creditors, receive no distributions. A corollary to the absolute priority rule prohibits a plan of reorganization from paying more to a class ( www.practicallaw.com/2-382-3334) than what it is owed (though this principle is not expressly stated in the Bankruptcy Code ( www.practicallaw.com/7-382-3256) ).

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