Relative priority rule
M&A / Merger ModelA cram down test requiring a dissenting class to be treated at least as well as classes of the same rank and better than those below it, without requiring it to be paid in full.
Also written: relative priority
Absolute priority says nothing junior may receive value until a dissenting class is paid in full. Relative priority is weaker: the dissenting class must be treated at least as favourably as any class of the same rank and more favourably than any class below it, but a junior class may still receive something while the dissenting class takes a haircut.
The Directive sets relative priority as its default for cross class cram down and permits member states to adopt absolute priority instead. The Netherlands took the relative approach, expressed as a rule that value follows the statutory ranking unless there is a reasonable ground to depart from it and the objecting class is not prejudiced.
The distinction is not academic. It decides whether a shareholder or a junior creditor can keep a stake while a senior class is impaired, which is exactly the outcome negotiated in most consensual restructurings and exactly the outcome absolute priority forbids.
England sits outside both. A restructuring plan applies no priority rule at all, relying instead on the no worse off comparison against the relevant alternative and on the court's discretion over how the surplus has been divided, which is why English plans can reach outcomes neither continental rule permits.
Worked example
A dissenting class of unsecured notes recovers 13% under a plan while the shareholders keep 5% of the equity, illustratively.
Under absolute priority that fails, because a junior class keeps value while a senior class is impaired.
Under relative priority it can survive if the notes are treated better than the shareholders and there is a reasonable ground for the split.