Pari passu is a Latin phrase that literally means "with an equal step" or "on equal footing". It is sometimes translated as "ranking equally",
Etymology
In legal terms, pari passu means "on equal footing." It refers to creditors, claimants, or shareholders receiving equal treatment without preference. Common in bankruptcy and finance, it ensures proportional distribution of assets, rights, or obligations among parties.
Usage
In inheritance
In inheritance, a
pari passu (
per capita) distribution can be distinguished from a
per stirpes (by family branch) distribution.
[ (defining per stirpes as "Proportionately divided between beneficiaries according to their deceased ancestor's share".]
For example, suppose a testator had two children A and B. A has two children, and B has three.
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If the testator leaves his or her entire estate to his or her grandchildren in equal shares pari passu, each grandchild would inherit one fifth of the estate.
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In contrast, if the estate was left to the grandchildren per stirpes (by family branch), the children of A would share one half of the estate equally between the two of them, and the children of B would share one half of the estate equally amongst the three of them.
In lending, bankruptcy and default
This term is also often used in the
lending area and in
bankruptcy proceedings, where
creditors are said to be paid
pari passu, or each creditor is paid
pro rata in accordance with the amount of his claim. Here its meaning is "equally and without preference".
There have been cases where decisions were based on different interpretations of the term.
[Devi Sookun Stop Vulture fund Lawsuits: A Handbook 2010 p34 2010 "The case succeeded because the court departed from the traditional meaning of the term pari passu. This section looks first at the original case of Elliott Associates v Republic of Peru."][Lloyd's maritime and commercial law quarterly 1983 "Obviously Lord Scott, in leaving out the preferential creditors, does not use the term pari passu in its multi-layered sense. Instead, his Lordship was referring to pari passu in its orthodox meaning."]
In the European Union, as the result of the Greek government-debt crisis, a retroactive collective action clause passed by the Greek government with the support of the ECB and IMF, enabled the debtor (who also controlled the courts) to impose a 70% loss on the creditors, more than 75% of whom had voted in favour of the cut. In this case, pari passu means that all private-sector investors are equally treated.
See also
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Statute of Bankrupts Act 1542, introducing the pari passu principle for creditors of insolvent persons. Pari passu means treat at par from the previous issue.
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Seniority (finance)
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List of Latin Phrases
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Collective action clause
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Rights upon future offers
Notes
Further reading
