Which group is paid first in the liquidation order?

In a liquidation scenario, the order of payment from a company's remaining assets is critical to understand. Secured debt holders are paid first because they possess security interests in specific company assets. This means that if the company goes bankrupt or is liquidated, secured creditors have a legal claim to designated assets, and they are prioritized in recovering their investments.

When a company is liquidated, the process follows a strict hierarchy to ensure that funds are allocated in a manner that respects legal obligations. After secured debt holders have been fully compensated from the liquidation proceeds, the next groups in line typically include unsecured debt holders, and then preferred stockholders. Common stockholders are at the bottom of this hierarchy in terms of payment priority, receiving assets only after all debts and preferred stock obligations have been met.

Understanding this order is crucial for investors in assessing risk and potential returns associated with different types of investments in a company. Secured debt, being less risky due to its priority in claims, is often a more stable investment compared to equity positions like common stock.