Question

In bankruptcy, the distribution of proceeds rule

A) is set to ensure senior claims are paid first.

B) associates the pay-off with the risk of the creditor/investor.

C) distributes proceeds of secured assets sales to the secured creditors first and the remainder to the unsecured.

D) all of the above.

E) none of the above.

Answer 1

In a bankruptcy, the distribution of proceeds rule

D) all of the above

In bankruptcy, senior claims are paid first and hence have a lower rate of return. It does associate the pay-off with the risk of the creditor or debtor involved. Secured creditors are those that have a collateral associated with the outstanding credit. Hence, they are paid first with the secured asset sale and then the unsecured creditors.

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