Receive Daily Updates by Email (Free Subscription)
Pari Passu clause in Debenture
The term "Pari-Passu", a latin phrase, is generally used to provide for a meaning of equal rights to two or more things.
Mostly Debentures are issued in different series with a pari passu clause for each such series, which means all the debentures of a particular series will rank equally without any priority of one over another.
A Company is not allowed to create a new series of debentures, which will rank pari-passu with any old series of debentures. However a company may do so with an express authorisation for doing so under power, if any, given under the debenture trust deed of the old series.
In the absence of any pari passu clause, the repayment to the debenture holders will be made according to the date of issue and if all the debentures are issued on the same day, they will be payable accordingly to their respective numbers
Advantage to the debenture holder
With a pari passu clause, a debenture holder is assured of getting the repayment in pro rata basis between denture holders, in case of insufficient funds / assets of the company.