In the order of repayment during liquidation, which group is repaid first?

In the order of repayment during liquidation, which group is repaid first?

• A. Common shareholders
• B. Mezzanine debt
• C. Secured bondholders
• D. Preferred shareholders

Answer: (C)

During liquidation, the order of repayment is structured to protect creditors and ensure that the most senior claims are addressed first. Secured bondholders hold a prominent position in this hierarchy because their debt is backed by specific assets of the company. This means they have the right to be compensated from the proceeds of those assets before any other claims are settled. The importance of this group lies in their secured status, which provides them with priority access to recovery. In the event of liquidation, assets are liquidated to pay off debts, and secured bondholders will receive payments from the sale of those assets first. If any assets remain after satisfying these debts, the remaining hierarchy would then address claims from preferred shareholders, followed by mezzanine debt holders, and finally, if there are resources available, common shareholders. This systematic approach ensures that those who took on less risk by securing their investments are prioritized appropriately in the repayment process.

During liquidation, the order of repayment is structured to protect creditors and ensure that the most senior claims are addressed first. Secured bondholders hold a prominent position in this hierarchy because their debt is backed by specific assets of the company. This means they have the right to be compensated from the proceeds of those assets before any other claims are settled.

The importance of this group lies in their secured status, which provides them with priority access to recovery. In the event of liquidation, assets are liquidated to pay off debts, and secured bondholders will receive payments from the sale of those assets first. If any assets remain after satisfying these debts, the remaining hierarchy would then address claims from preferred shareholders, followed by mezzanine debt holders, and finally, if there are resources available, common shareholders. This systematic approach ensures that those who took on less risk by securing their investments are prioritized appropriately in the repayment process.