Pari passu


Pari passu is a Latin phrase that literally means "with an equal step" or "on equal footing". It is sometimes translated as "ranking equally", "hand-in-hand", "with equal force", or "moving together", and by extension, "fairly", "without partiality".

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.
This term is commonly used in law. Black's Law Dictionary defines pari passu as "proportionally; at an equal pace; without preference".

Usage

In inheritance

In inheritance, a pari passu distribution can be distinguished from a per stirpes distribution.
For example, suppose a testator had two children A and B. A has two children, and B has three.
  • 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.
  • In contrast, if the estate was left to the grandchildren per stirpes, 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.
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 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.