Pari Passu Sharing Agreement

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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. This differs from most agreements involving more than one lender, which generally establish a repayment hierarchy in which some lenders are given priority in terms of date and amount of payment. The pari-passu can describe certain clauses within a large number of financial vehicles, such as loans and bonds, which are debt securities issued by companies for fundraising purposes. These clauses are often available to ensure that the corresponding financial product is equal to all similar products. 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. 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. The company is important for unsecured loan contracts because it handles the classification of unsecured receivables. Although it may be useful for secured loan contracts if the proceeds from the sale of the guaranteed asset (for example. B a mortgage or asset) is insufficient to repay the creditor. The reason is that certain categories of creditors have priority over other creditors, such as the .

B employees and liquidator costs. In this case, the creditor becomes an unsecured creditor and wants to match the other unsecured creditors. Often, identical items are pari-passu that come with the same benefits and the same cost of other items with which they are grouped. In other situations, objects can only be pari-passu on one aspect or only on certain aspects. For example, two competitors can offer two identical functional widgets at the same price with superficial differences like color. These widgets are functional pari-passu, but can be aesthetically different. In the financial field, the term pari-passu may refer to loans, loans or classes of shares with the same payment rights or seniority rights. Pari-passu can describe any instance in which two or more elements can claim the same rights as the other. Within the marketplace, all new shares (a so-called secondary offer) have the same rights as existing or previously issued shares.

In this sense, the shares are pari-passu. Pari-passu may, for example, be applicable to common shares, so that each shareholder has the same rights over dividends, voting rights and liquidation rights. 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. A parity obligation is the opposite of a junior pledge or a principal pledge obligation.

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