Pari Passu
Literal meaning: “With equal step; on equal footing”
What does the Latin term "Pari Passu" mean in law?
Pari passu denotes equal treatment or proportional distribution among two or more parties with equivalent claims. In bankruptcy and corporate law, a pari passu clause ensures that creditors of the same class are treated equally and share proportionally in any distribution of the debtor's assets. Secured creditors with pari passu liens hold security interests of equal priority. In international sovereign debt, pari passu clauses have been the subject of significant litigation, most notably in cases involving Argentina's restructured debt, where courts interpreted the clause to require equal treatment of all bondholders. The principle reflects the fundamental equitable notion that similarly situated parties should receive the same treatment.
Source: Contracts · Legal Latin
Legal Definition
Pari passu denotes equal treatment or proportional distribution among two or more parties with equivalent claims. In bankruptcy and corporate law, a pari passu clause ensures that creditors of the same class are treated equally and share proportionally in any distribution of the debtor's assets. Secured creditors with pari passu liens hold security interests of equal priority. In international sovereign debt, pari passu clauses have been the subject of significant litigation, most notably in cases involving Argentina's restructured debt, where courts interpreted the clause to require equal treatment of all bondholders. The principle reflects the fundamental equitable notion that similarly situated parties should receive the same treatment.
How It's Used
Corporate and bankruptcy lawyers draft pari passu clauses to ensure that no creditor within the same class receives preferential treatment in a distribution. The term appears frequently in bond indentures, credit agreements, and bankruptcy plans of reorganization.
Example Sentences
The bond indenture contained a pari passu clause providing that all holders of the senior unsecured notes would be treated equally in any distribution of the issuer's assets.
The bankruptcy court ordered a pari passu distribution among all general unsecured creditors, awarding each 32 cents on the dollar.
In the Argentina bond litigation, the court held that the pari passu clause required the sovereign to make ratable payments to all bondholders, including those who had refused the debt restructuring.