Pari passu
From Wikipedia, the free encyclopedia
Pari passu is a Latin phrase that literally means "with an equal step" or "on equal footing." It is sometimes translated as "ranking equally", [1] "hand-in-hand," "with equal force," or "moving together,"[citation needed] and by extension, "fairly," "without partiality."
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.
In finance, this term refers to two or more loans, bonds, classes of shares having equal rights of payment or level of seniority.[2] For asset management firms, the term denotes an equal allotment of trades to strategically identical funds or managed accounts.
There have been cases where decisions were based on different interpretations of the term.[3][4]
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[edit] Description
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.
In finance, this term refers to two or more loans, bonds, classes of shares having equal rights of payment or level of seniority.[2] For asset management firms, the term denotes an equal allotment of trades to strategically identical funds or managed accounts.
[edit] In bankruptcy
This term is also often used in bankruptcy proceedings where creditors are said to be paid pari passu, or each creditor is paid pro rata in accordance with the amount of his claim. Here its meaning is "equally and without preference."There have been cases where decisions were based on different interpretations of the term.[3][4]
[edit] See also
- Statute of Bankrupts Act 1542, introducing the pari passu principle for creditors of insolvent persons. Pari Passu means treat at par from the previous issue
- Seniority (finance)
- List of Latin Phrases
[edit] References
- ^ Harriman's Financial Dictionary: Over 2,600 Essential Financial Terms Simon Briscoe, Jane Fuller - 2007 - 348 "Ranking equally, meaning literally 'with equal step'."
- ^ Investopedia.com
- ^ Devi Sookun Stop Vulture Fund Lawsuits: A Handbook 2010 p34 2010 "The case succeeded because the court departed from the traditional meaning of the term pari passu. This section looks first at the original case of Elliott Associates v Republic of Peru."
- ^ Lloyd's maritime and commercial law quarterly 1983 "Obviously Lord Scott, in leaving out the preferential creditors, does not use the term pari passu in its multi-layered sense. Instead, his Lordship was referring to pari passu in its orthodox meaning."
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