Legal Definitions - pari passu

Pari passu is a Latin term meaning "by equal step." In legal and financial contexts, it describes a situation where parties, claims, or assets are treated equally, without preference or priority over one another. This often means that benefits or burdens are shared proportionally among all involved.

• Example 1: Corporate Debt

  Imagine a company that has borrowed money from several different banks. If the loan agreements specify that these loans are all ranked pari passu, it means that if the company experiences severe financial distress and cannot repay all its debts, none of these specific banks has a superior claim over the others. Any available funds or assets designated for repayment would be distributed proportionally among these lenders based on the amount each is owed, ensuring they are treated equally in the repayment process.

• Example 2: Investment Fund Returns

  Consider a private investment fund where multiple individuals have contributed capital. If the fund's governing documents state that all investors participate pari passu, it signifies that any profits generated by the fund, or any losses incurred, will be allocated to each investor proportionally to their initial investment. No single investor will receive preferential treatment or a higher priority return than others in the same class, ensuring an equitable distribution of financial outcomes.

• Example 3: Legal Settlement Distribution

  In a large class-action lawsuit, where numerous individuals have suffered similar harm and are part of the same claimant group, a court might approve a settlement fund to compensate the victims. If the settlement terms dictate that the fund will be distributed pari passu among all eligible claimants, it means that each claimant will receive a share of the fund that is proportional to their proven damages. This approach prevents some claimants from being paid in full before others receive anything, ensuring fair and equal treatment for all members of the class based on their individual losses.