In a Chapter 11 proceeding, which group has the highest priority claim?

In a Chapter 11 proceeding, secured debt holders have the highest priority claim on the debtor's assets. This is because secured creditors have collateral backing their claims, meaning that their loans are guaranteed by specific assets of the company. In the event of liquidation or bankruptcy, secured creditors are first in line to be paid from the proceeds of any asset sales before any other classes of creditors or equity holders receive anything.

This priority is crucial during the reorganization process, as it influences the restructuring negotiations and the distribution of any recoveries. Unsecured creditors, preferred stockholders, and common stockholders follow in the priority chain, with unsecured creditors being paid only after all secured debts are satisfied. Preferred stockholders have a higher claim than common stockholders, but they still rank below secured creditors and may receive payments only if there are funds remaining after secured obligations are met. Common stockholders are last in line and typically receive nothing if all debts are not fully paid. Understanding this hierarchy is vital for anyone studying the bankruptcy process and the implications for different classes of claims.