TLDR:
Pari passu is a Latin term meaning “equal footing,” used in finance to describe securities or obligations that have equal rights, with no one party having priority over another in distributions or payments.
Pari Passu in Bankruptcy and Liquidation
In debt contexts, pari passu provisions ensure that multiple creditors holding the same class of debt are treated equally — no single creditor receives priority or preferential payment over another holder of the same instrument. This principle became notable in the Argentina sovereign debt restructuring litigation (NML Capital v. Argentina), where courts interpreted pari passu clauses to require Argentina to pay holdout creditors in full whenever they paid restructured debt holders, creating significant complications for the country’s debt restructuring.
Pari Passu in Preferred Stock
In venture financings, “pari passu” most often describes the relationship between different series of preferred stock. When a Series B is pari passu with Series A on liquidation, both series share liquidation proceeds proportionally rather than one taking priority. This is the default expectation for most VC-style preferred stock, though investors sometimes negotiate for “senior” preferences that pay before existing series.
Cross-Border Considerations
The term appears across debt indentures, syndicated loan agreements, and intercreditor arrangements. A “pari passu clause” in sovereign or corporate debt requires the issuer to treat all qualifying creditors equally — famously enforced against Argentina in the NML Capital litigation, where pari passu obligations effectively prevented Argentina from paying restructured bondholders while leaving holdout creditors unpaid.