How is seniority of creditors decided?

Answer 1

The creditors who have taken on the least amount of risk are usually senior to those that have taken on more risk. At the top of the list would be those that extended credit to an institution that has been secured by something, usually real estate, equipment or inventory. These are usually bank lenders. Next you have general creditors. These are companies and investors that have either provided the company with goods and services or purchased bonds from the institution. Further down the food chain you then have preferred stockholders of the company. Last and at the bottom of the food chain are the common shareholders. The common stockholders have taken on the most risk and while they often are able to benefit the most when times are good...they are also the ones that often get left holding the bag when times go bad..