Absolute Priority Rule

In general terms, the absolute priority rule of Section 1129(b) of the Bankruptcy Code provides that if a class of unsecured creditors rejects a debtor’s reorganization plan and is not paid in full, junior creditors and equity interest holders may not receive or retain any property under the plan. The rule thus implements the general state-law principle that creditors are entitled to payment before shareholders, unless creditors agree to a different result.

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