What is Pari Passu?

Pari-Passu is a Latin word that means "equal footing", often used to denote equality in the right of payment. The term is often used in insolvency proceedings, wherein unsecured creditors exert an equal right over the available assets of the insolvent company.

*In finance, Pari-Passu is used to describe securities, loans which have an equal claim on the right of payment. In addition, Pari-Passu can refer to any situation where two or more parties can stake similar or equal rights as the other.

*Pari-passu will stop its applicability when the banks are creditors. For example, if a company has gone bankrupt and there is a hierarchical order which suggests that certain creditors will be given priority and will be paid first in case of insolvency

*The Pari-Passu clause is relevant for a lender. For example, before a creditor grants a loan to a company, the former wants to know if the senior creditors prioritise others. However, the creditor can ask the company to repay the loan if the company has not made the creditors list public.  

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