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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

28 FEB 2011

Pari Passu Rhetoric on the Scales

Professor Riz Mokal's 2001 exposition of the function of pari passu in English insolvency law (Mokal, R.'Priority
2001 exposition of the function of pari passu in English insolvency law (Mokal, R.'Priority as Pathology: The Pari Passu Myth’ [2001] CLJ 581-621) and, Mr Look Chan Ho's 2006 review of Professor Sir Roy Goode QC's third edition (Ho, LC. 'Goode's swan song to corporate insolvency law' [2006] EBLR 1727), amongst other work, highlight a schism between two camps. There are those who view pari passu as being 'fundamental', 'cardinal', 'a cornerstone', etc, and those, like the authors noted above, who view the role and reality of pari passu with more precision and as being merely one of a number of priority rules. There are of course different views of pari passu within this broader debate.

Professor Vanessa Finch and Mr Ho have both offered explanations of how pari passu works in reality. In the second edition of her treatise (Finch, Vanessa. Corporate insolvency law: perspectives and principles. Cambridge University Press, Cambridge, 2009) Finch defines a  strong version of pari passu which operates so “that unsecured creditors as a whole, are paid pro rata to the extent of pre-insolvency claims.” Her weak version of pari passu operates so that “…such unsecured creditors share rateably within the particular ranking that draws distinctions between different classes of unsecured creditors (e.g. preferred employees and ordinary unsecured creditors).” Ho also divides his conceptualisation into two parts (see Goode's Swan Song - cited above). His orthodox version states that “all creditors of a particular pre-insolvency form (unsecured creditors as a group) share equally.” His multi-layered version operates so “creditors that are similarly ranked by insolvency law share equally within their given rank.” (Ho)

With these definitions and tensions in mind I thought it would be interesting to construct a table which compares pari passu rhetoric. The following table (and therefore this post) will grow as further sources are added:

 

 

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