Seniority in Company Bankruptcy

D

Debt holders are paid first.

In the event of a company's bankruptcy, the seniority of different groups of stakeholders determines their priority in receiving payments from the company's assets. The hierarchy of seniority establishes the order in which these groups are entitled to receive their claims. Let's go through each option to determine the group with the highest seniority:

A. All have the same seniority: This option suggests that all stakeholders, including preferred stockholders, common stockholders, and debt holders, have equal seniority. However, this is not typically the case in a bankruptcy scenario. Different groups usually have different levels of seniority, which determine the priority of their claims.

B. Preferred stockholders: Preferred stockholders are shareholders who have a higher claim on a company's assets compared to common stockholders. They typically have a preference over common stockholders when it comes to receiving payments. However, in the event of bankruptcy, preferred stockholders are generally considered to be junior to debt holders, meaning that debt holders have a higher level of seniority.

C. Common stockholders: Common stockholders are the regular shareholders of a company. They have the lowest priority in receiving payments during a bankruptcy. In most bankruptcy cases, common stockholders receive payment only after all other senior claimants, such as debt holders and preferred stockholders, have been satisfied. Therefore, common stockholders have the lowest seniority.

D. Debt holders: Debt holders, such as bondholders and lenders, generally have the highest seniority in the event of a company's bankruptcy. When a company goes bankrupt, its assets are used to repay debts. Debt holders have a legal claim on the company's assets, usually backed by the terms of a loan agreement or a bond indenture. They are typically the first to be repaid during the bankruptcy process, ahead of preferred and common stockholders.

Therefore, the correct answer is D. Debt holders have the highest seniority in the event of a company's bankruptcy, followed by preferred stockholders, while common stockholders have the lowest seniority.