Question

Which of the following statements is correct regarding payment priority to holders of subordinated debentures in the case of a bankruptcy?

a. They have the highest priority among all creditors.
b. They are paid after secured creditors but before unsecured creditors.
c. They are treated equally with other unsecured creditors.
d. They are paid last, after all other creditors have been settled.

Answer 1

In the case of bankruptcy, holders of subordinated debentures are paid last, after all other creditors have been settled.

Step-by-step explanation:

In the case of bankruptcy, holders of subordinated debentures are paid last, after all other creditors have been settled. This means that they have the lowest priority among all creditors. Subordinated debentures are considered to be unsecured debt, which means they do not have any collateral backing them. Secured creditors, on the other hand, have assets pledged as collateral, and they are paid first in the event of bankruptcy. After secured creditors, unsecured creditors are paid before subordinated debenture holders.