Abstract
The absolute priority rule describes the basic order of payment in bankruptcy. Secured creditors get paid first, unsecured creditors get paid next, and only then do shareholders get paid, if at all. The rule has obtained a kind of unassailable, near scriptural status in the corporate reorganization literature.But there is no absolute priority rule of the kind described in the literature under current law. It is not clear there ever has been such a rule. And even if there were, adopting such a rule would be inconsistent with chapter 11, or any other sensible system of reorganization. In essence, the academic conception of the absolute priority rule in corporate reorganization is based on a world that does not exist. Reorganizing companies are dynamic things, whereas most of the literature assumes a frozen pool of assets, to which the court might oversee an orderly allocation of value.Reorganization in reality is fundamentally inconsistent with heartfelt fondness for a strict absolute priority rule.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
