In the event of liquidation, which claimant ranks first?

In the event of liquidation, which claimant ranks first?

• A. Common stockholders
• B. Bond holders
• C. Unpaid employees
• D. Preferred stockholders

Answer: (C)

In a liquidation scenario, the order of claimants receiving payment follows a specific hierarchy based on the nature of their claims. Unpaid employees rank first among these claimants because they are often granted priority under labor laws. This prioritization reflects the importance of ensuring that employees receive their due compensation before any distributions are made to creditors or shareholders. When a company enters liquidation, it typically pays off secured creditors first, which may include bondholders. However, unpaid wages and salaries for employees take precedence over these obligations. After employee claims are settled, the remaining assets would then be allocated to other creditors, such as bondholders, followed by preferred stockholders, and finally common stockholders, who are last in line and often receive nothing in liquidation events. This hierarchy underscores the protection afforded to employees in the event of a company's financial distress.

In a liquidation scenario, the order of claimants receiving payment follows a specific hierarchy based on the nature of their claims. Unpaid employees rank first among these claimants because they are often granted priority under labor laws. This prioritization reflects the importance of ensuring that employees receive their due compensation before any distributions are made to creditors or shareholders.

When a company enters liquidation, it typically pays off secured creditors first, which may include bondholders. However, unpaid wages and salaries for employees take precedence over these obligations. After employee claims are settled, the remaining assets would then be allocated to other creditors, such as bondholders, followed by preferred stockholders, and finally common stockholders, who are last in line and often receive nothing in liquidation events. This hierarchy underscores the protection afforded to employees in the event of a company's financial distress.