Asked by Moriah Foster on Jun 25, 2024
Verified
According to the absolute priority rule, the correct order of distribution in liquidation is:
Administrative expenses of the bankruptcy, Employee wages, Government taxes Unsecured creditors.
Absolute Priority Rule
A principle in bankruptcy proceedings that senior creditors are paid before junior creditors and shareholders.
Liquidation
Termination of the firm as a going concern.
Administrative Expenses
Costs related to the general operation of a business that aren't directly tied to a specific project or product.
- Acquire knowledge on the strategies and consequences of debt reorganization, including the composition and the absolute priority rule during bankruptcy cases.
Verified Answer
MA
Munira AlasfoorJun 27, 2024
Final Answer :
True
Explanation :
The absolute priority rule in bankruptcy establishes the order in which claims are paid from the liquidated assets of a bankrupt company. It prioritizes paying administrative expenses of the bankruptcy first, followed by employee wages, government taxes, and finally, unsecured creditors. This ensures that the costs of administering the bankruptcy are covered before any other claims and that employees and the government are paid before general unsecured claims.
Learning Objectives
- Acquire knowledge on the strategies and consequences of debt reorganization, including the composition and the absolute priority rule during bankruptcy cases.
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