Absolute Priority Rule

The absolute priority rule (APR) is the Bankruptcy Code principle that, in a cram-down, a dissenting class of creditors must be paid in full before any junior class receives or retains any property under the plan. Seniors before juniors; creditors before equity.

APR binds strictly only against a dissenting impaired class in cram-down (codified in section 1129(b)'s "fair and equitable" requirement). If classes consent, the parties can — and often do — deviate: senior creditors may "gift" recoveries to junior classes or old equity to buy peace, avoid litigation, and speed confirmation.

APR is why common shareholders are typically wiped out or left with token recoveries in Chapter 11 unless the company is solvent, and why valuation fights matter: a higher plan value pushes recoveries further down the waterfall, benefiting junior classes.