Absolute Priority Rule

Absolute Priority Rule - The absolute priority rule kicks into play on the stock market when an event occurs that forces a business into a liquidation or re-organization. Unfortunately, for the shareholders in the business, creditors get to dip their fingers into the pot and retrieve the full balance of what they are owed; whereas shareholders only receive compensation after the creditors have been paid out and generally, they receive only a percentage of what is owned to them. Therefore, when it comes right down to it, being a shareholder is rather a big gamble once the business gets in trouble. Who said being a creditor wasn't good business, seems like it comes with a guarantee.