What is pari passu clause in case of debentures?

A Debenture secures a loan using the borrower’s assets and all terms and conditions and warranties are recorded in the Debenture. Pari Passu means ‘equal footing’ thus, the purpose of the Pari Passu clause is to ensure that the security conferred by the Debenture will always rank equally to any other security.

What is pari passu basis?

Pari-passu is a Latin phrase meaning “equal footing.” In finance, “equal footing” means that two or more parties to a financial contract or claim are all treated the same. Pari-passu is common in bankruptcy proceedings as well as debts such as parity bonds in which each party gets the same amount.

Why is pari passu important?

Pari passu is a Latin term that means ‘on equal footing’ or ‘ranking equally’. It is an important clause for creditors of a company in financial difficulty which might become insolvent. If the company’s debts are pari passu, they are all ranked equally, so the company pays each creditor the same amount in insolvency.

What does pari passu mean in case of debentures?

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.

What happens if there is no pari passu clause?

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.

When is issue of debentures issued at par?

When the amount collected for it is equal to the nominal value of debentures, it is said to have been issued at par. e.g. the issue of debentures of Rs. 100/- for Rs. 100/-

Can a debenture be converted into a share?

A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption. The issue of debentures with an option to convert such debentures into shares, wholly or partly, shall be approved by a special resolution passed at a general meeting.