During winding up, which priority applies to payments?

During winding up, which priority applies to payments?

• A. Pay creditors before shareholders
• B. Pay shareholders before creditors
• C. Pay shareholders according to preference before creditors
• D. There is no priority; all payments are equal

Answer: (A)

When winding up, the assets are used to satisfy debts before anything is paid to owners. That means creditors have priority over shareholders. Within creditors, secured creditors are paid to the extent of their collateral, then unsecured creditors. Only after all debts are satisfied do shareholders receive distributions, with preferred stockholders paid before common stockholders. So paying creditors before shareholders reflects the lawful order of priority, making this the best answer.

When winding up, the assets are used to satisfy debts before anything is paid to owners. That means creditors have priority over shareholders. Within creditors, secured creditors are paid to the extent of their collateral, then unsecured creditors. Only after all debts are satisfied do shareholders receive distributions, with preferred stockholders paid before common stockholders. So paying creditors before shareholders reflects the lawful order of priority, making this the best answer.