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The Life and Times of the Non-Absolute Priority Rule

By Michael J. Sage and Steven B. Smith

What better way to strike fear into the hearts and minds of attorneys than to style a particular rule as “absolute?” A linchpin of bankruptcy law, the absolute priority rule is supposed to provide some measure of order and certainty in the otherwise uncertain, if not sometimes chaotic, world of Chapter 11. It does this by ensuring that the hiearchy of priorities remains absolute. And if you read very closely between the lines of ' 1129 of the Bankruptcy Code, you might be able to discern the challenge to us all that the drafters of that particular section embedded therein: “Let's see you get around this rule.” But bankruptcy practitioners know that the mere inclusion of the word “absolute” in the rule's name does not make it so. And indeed, it is not so. It appears that the priority rule is far from absolute after all.

What Is the Absolute Priority Rule and Where Did It Come From?

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