The Pari Passu Clause

The pari passu clause is a legal provision found in loan agreements and bond contracts that ensures all creditors holding similar debt rank equally and are paid simultaneously without any unfair preference. Essentially, it guarantees that if a borrower defaults, each creditor with a pari passu claim will share proportionally in the repayment, maintaining fairness among creditors. This clause helps prevent one creditor from receiving priority over others and promotes equitable treatment, especially in situations where the borrower's assets are being distributed or liquidated.