The correct option is B. Debenture holders. Explanation of the Correct Answer When a firm goes into liquidation, it means that the company is unable to pay its debts and is in the process of selling off its assets to pay creditors. The order in which different groups of stakeholders are paid is crucial and is determined by the legal hierarchy of claims.

1. Debenture Holders:
2. Debenture holders are creditors of the company who have lent money to the firm, typically through the issuance of debentures (a type of bond). They are considered secured creditors if their debentures are secured against the company's assets. This means they have a legal claim to be paid before other stakeholders when the company liquidates.
3. In the liquidation process, debenture holders are paid first from the proceeds of the asset sales. This is because they have a higher priority in the capital structure of the company.

Why the Other Options Are Incorrect A. Preference Shareholders: - Preference shareholders have a claim on the company's assets after all debts, including those owed to debenture holders, have been settled. While they do have a preferential right to dividends and, in some cases, to assets upon liquidation, they are still subordinate to debenture holders. Therefore, they are not paid first. C. Ordinary Shareholders: - Ordinary shareholders are the last in line to be paid during liquidation. They only receive payment after all debts and obligations to creditors, including debenture holders and preference shareholders, have been satisfied. This makes their claim the weakest in the hierarchy. D. Cumulative Preference Shareholders: - Cumulative preference shareholders are a specific type of preference shareholder who are entitled to receive dividends that have been missed in previous years before any dividends can be paid to ordinary shareholders. However, like regular preference shareholders, they are still subordinate to debenture holders in the liquidation process. Summary of the Liquidation Payment Order

1. Debenture Holders: Paid first, as they are secured creditors.
2. Preference Shareholders: Paid after debenture holders, but before ordinary shareholders.
3. Cumulative Preference Shareholders: Also paid after debenture holders, but before ordinary shareholders, depending on their specific rights.
4. Ordinary Shareholders: Paid last, only after all debts and obligations have been settled.

Revision Summary

• In liquidation, the order of payment is crucial and follows a specific hierarchy.
• Debenture holders are paid first as they are secured creditors.
• Preference shareholders and cumulative preference shareholders are paid next, but only after all debts are settled.
• Ordinary shareholders are the last to receive any payment, making their claim the weakest.