If the company`s debts are pari passu, they are all classified in the same way, so that the company pays the same amount to each creditor in the event of bankruptcy. In the banking sector, pari-passu is generally used for unsecured debt securities, which are bonds or unsecured loans. For example, when a lender grants an unsecured loan to a business, it may include a pari passu clause in the contract. If the borrower goes bankrupt, the lender has the same payment rights and is considered an unsecured creditor of the other borrower. This clause prevents other lenders from sneaking in and getting services simply because they have made a loan before. Instead, once the entity has liquidated its assets, the funds are paid proportionally to all creditors who value pari-passu on the basis of their initial investment (pro-rata) and at the same time. A pari-passu action occurs when a company makes a decision about its shareholders on a pari passu basis. Let`s say a logo design company called Simple Symbols issued pari passu bonds. Finally, Simple Symbols declares bankruptcy and must liquidate all its assets. Once everything is liquidated, Simple Symbols distributes the funds “on an equal footing” to bondholders – at the same amount and at the same time. All bondholders have the same rank and seniority.

Pro-rata is a Latin term meaning “proportion.” It refers to the proportional distribution of commitments and profits, usually in a real estate contract. For example, if an investor paid 90% of a property and another 10%, the commitments and profits would be distributed proportionally to each of them. In the European Union, a retroactive collective clause, adopted by the Greek government with the support of the ECB and the IMF, allowed, in the wake of the Greek sovereign debt crisis, to impose a 70% loss on the debtor (who also controlled the courts), more than 75% of whom had voted in favour of the reduction. In this case, pari passu means that all private investors will be treated the same. [6] This term is also frequently used in the area of credit and in bankruptcy proceedings, in which creditors are paid pari passu or when each creditor is paid in proportion to the amount of his debt. Here its meaning is “equal and without preference.” There have been cases where decisions were based on different interpretations of the term. [4] [5] Pari passu is a Latin term meaning “on an equal footing” or “equal.” This is an important clause for creditors of a company in financial difficulty who could become insolvent. Pari-passu does not, however, apply to creditors or banks. When a company is in default, there is a hierarchical order in which certain creditors are paid back in the first place in the event of bankruptcy and liquidation of the company`s assets. As a result, pari-passu would not apply to creditors and shareholders, since creditors would be paid before shareholders. Pari-passu and pro-rata are generally used in conjunction with commercial real estate investments. Although they are complementary, they do not think the same thing.

Pari-passu is a financing agreement that gives several lenders an equal right to the assets used to secure a loan. If the borrower is unable to meet the payment terms, the assets can be sold and each lender receives an equal share of the proceeds at the same time.