Pari passu principle

Latin for “with an equal step”. The English interpretation of the pari passu rule gives it the meaning, “on equal footing, proportionately”.

The pari passu principle is a fundamental feature of insolvency law where the assets of a company in insolvency are equally distributed between creditors during a voluntary administration, liquidation, or other restructuring. The pari passu rule applies to creditors who do not have a secured interest in the company’s property beyond any other creditor.

This means that after secured creditors have their debts repaid, the remaining creditors have the remaining assets distributed among them equally and proportionally.

Insolvency occurs when a business or an individual is unable to meet their debts as they become due and payable.

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