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See also Bankruptcy (fair and equitable: absolute priority rule). The order of payment established by the Bankruptcy Code for different classes of creditors. The usual order is: first, administrative claims; second, statutory priority claims such as tax claims, rent claims, consumer deposits, and unpaid wages and benefits from before the filing; third, secured creditors' claims; fourth, unsecured creditors' claims; and fifth, equity claims.


The absolute-priority rule, codified in 11 U.S.C. § 1129(b)(2)(B)(ii), forbids confirmation of a plan of reorganization over the objection of an impaired class of creditors unless 'the holder of any claim or interest that is junior to the claims of such [impaired] class will not receive or retain under the plan on account of such junior claim or interest any property.' 


In other words, creditors may insist on priority of payment: secured creditors must be paid in full before unsecured creditors retain any interest, and unsecured creditors must be paid off before equity holders retain an interest. But equity investors frequently argue that this rule may be bent if they contribute new value as part of the plan. The court had rejected other new-value arguments, see Kham & Nate's Shoes No. 2 ...

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