{"id":74474,"date":"2022-02-08T13:00:12","date_gmt":"2022-02-08T05:00:12","guid":{"rendered":"https:\/\/zegal.com\/?p=74474"},"modified":"2023-10-19T14:55:01","modified_gmt":"2023-10-19T06:55:01","slug":"everything-you-need-to-know-about-pari-passu-clauses-in-loans","status":"publish","type":"post","link":"https:\/\/zegal.com\/en-hk\/blog\/post\/everything-you-need-to-know-about-pari-passu-clauses-in-loans\/","title":{"rendered":"Everything You Need to Know About Pari Passu Clauses in Loans"},"content":{"rendered":"


\nKnow your contract clauses.<\/em><\/span><\/p>\n

When dealing with loan agreements, you may come across the \u201cpari passu” clause. Here we’ll explore its meaning, the context in which it is used, its importance and the related concepts which are important to the term.<\/span><\/p>\n

\"Loan\"<\/p>\n

<\/span>What is the meaning of Pari Passu?<\/b><\/span><\/h3>\n

It is a Latin phrase which means \u2018on equal footing\u2019. Sometimes, it is also named in other words like \u2018ranking equally\u2019, \u2018with equal force\u2019, \u2018hand in hand\u2019, or \u2018moving together\u2019.<\/span><\/p>\n

Generally, the term pari passu refers to those things or situations which are ranked equally. In the context of legal terminology, it\u00a0 means \u2018to be equal in right of payment\u2019.<\/span><\/p>\n

This phrase is commonly found in the various debt instrument agreements. It simply means that all the parties to the agreement will get equal treatment. It implies that more than one party involved in an agreement with one company will be ranked equally.<\/span><\/p>\n

<\/span>Who does a Pari Passu Clause apply to?<\/b><\/span><\/h3>\n

There are two types of creditors, one is a secured creditor and the other is an unsecured creditor. Pari Passu clauses are relevant to unsecured creditors only where the loan is not secured by any collateral such as a house or a car.<\/span><\/p>\n

Where a person has lent money to a business, the person is treated as a creditor. This may be understood as providing a loan to the business. Similarly, the employees of a business can also be treated as creditors if they are owed unpaid wages.\u00a0<\/span><\/p>\n

<\/span>What does it mean on the context of a Loan Agreement?<\/b><\/span><\/h3>\n

Where a pari passu clause is contained in a loan agreement<\/a>, it states the wording that all creditors will rank pari passu with each other and any other unsecured payment obligations of the issuer.<\/span><\/p>\n

Generally, such a clause refers to loans or bonds which means that any debt will be ranked equally with the other obligations of a company. In a loan agreement, the pari passu clause is contained in two ways:<\/span><\/p>\n