Pari passu is a Latin phrase often translated as “equal footing.” It is used to refer to situations where assets are distributed equally to all named parties, without any exhibition of preference. Legal paperwork, especially older paperwork, can use this term, although newer documentation tends to avoid it because it is considered needless legal jargon and the legal community in some regions has moved towards the use of more plain language to avoid confusion.
A common situation where pari passu can come up is in bankruptcy proceedings. In these proceedings, all creditors can be considered equally, without any special exceptions. As the estate is processed, creditors will be repaid equally and at the same time. If there is not enough available money to repay everyone, fractional payments will be made on the basis of the amount of debt each creditor is owed.
Pari passu can also come up in wills and trusts, where the creator can indicate that the assets should be equally distributed to everyone. In these cases, no one is named over or above anyone else. If the assets decline in value, everyone will suffer a corresponding decrease in distribution. This is one among many different methods people can use for ordering and arranging wills and trusts, and an attorney can provide more information about the most appropriate and advantageous option for someone to choose.
Companies issuing new securities can make a pari passu distribution, indicating that the new issue is on the same footing with older issues. It will not be given preference, and people who purchase debt obligations such as stocks and bonds issued on a pari passu distribution scheme will also not be given preference when it comes to repayment. In the case of a company in healthy financial condition, this may not pose a significant concern, but if a company enters bankruptcy proceedings, these creditors risk losing part or all of their investments.
The use of Latin legal terms is in decline in many regions, for a number of reasons. Using plain, clear language is encouraged in a movement away from the heavy use of legal jargon, to make legal documents easy for lay people to understand. The use of Latin in many settings may be frowned upon, and people can be asked to revise and resubmit documents with Latin terms in them for purposes of consistency and clarity. In more formal settings, Latin is acceptable.
