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Pari passu

CA Mohit Agrawal (Chartered Accountant) (371 Points)

29 December 2011

please tell me what is the meaning of pari passu or ranking pari passu

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 29 December 2011

I think in Insolvency proceedings or in Liquadation at one point of time debenture holders though called secured creditors will stand in equal footing ie stand paripassu with unsecured creditors since i am not through in the concepts where it is exactly applied but this is the case

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Sanket (!..Live to Give..!) (16427 Points)
Replied 29 December 2011

Pari Passu is a term used in banking transactions which means that the charge to be created is in continuation of an earlier charge which might be held by the same institution or by an other institution.

Parri Passu Charge?

Parri Passu is derived from Latin for 'with equal progress'. The phrase is used to indicate simultaneous and equal change or to describe similar ranking of securities or lenders; for example, when a new issue of shares is made, they could be said to rank pari passu, ie, equally with existing shares for the purposes of dividend payments. A common agreement between joint lenders is a pari passu clause under which, in the event of a shortfall, they agree to share equally whatever is available.

The use of "Pari Passu" when creating a charge means that when company Y goes into dissolution, the assets over which the charge has been created will be distributed in proportion to the creditors' respective holdings. Therefore, if the Bank X has tendered a loan facility of 60 million PKR while another creditor, say Z, has tendered 40 million PKR, the recovery after selling assets of Company Y to which joint pari passu charge attached, shall be distributed in the ratio of 6:4 amongst X and Z. Where preferential rights attach to assets of the company, the preferential creditors rank higher in the distribution stakes i.e. they are paid in priority to other creditors of the company...

SHUBHAM (Article Assistant) (48 Points)
Replied 20 April 2012

Descripttion

· passu is the ablative of the Latin noun passus, "step"

· pari is the ablative singular masculine (since it must grammatically agree with passu) of the adjective par, "equal". If it was nominative, "an equal step" it would simply be par passus.

In law, this term is commonly used jargon. Black's Law Dictionary (8th ed., 2004) defines pari passu as "proportionally; at an equal pace; without preference."

In inheritance, an in pari passu (per capita) distribution can be distinguished from a per stirpes (by family branch) distribution. For example, suppose a testator had two children A and B. A has 2 children, and B has 3. The testator leaves his entire estate to his grandchildren in equal shares in pari passu, each grandchild would inherit one fifth of the estate. If the testator left his entire estate to his 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. The problem with an in pari passu distribution in the example given is that, let's assume A dies before B. On A's death a distribution could not be made to his or her children: they would have to await the death of B (B may have more children after A's death) before the share of the estate they are to take could be determined.