The Pari Passu Principle in Australian Corporate Insolvency Law

Abstract

One of the most controversial issues in modern insolvency law is the question of how to distribute an insolvent’s assets among its creditors. The pari passu principle attempts to resolve this issue by ensuring that all creditors are treated equally, ‘pari passu’, and share in insolvency assets pro rata depending on their pre-insolvency entitlements or the sums owed to them. This article analyses how this principle has been affected by its numerous and broad exceptions, in particular security, priorities, set-off, netting, debt subordination and members’ debts. It is argued that there are significant policy reasons justifying the continued existence of the exceptions to the principle with little to no modification, as the current distribution regime maximises the fairness and efficiency of the insolvency process.

Keywords: pari passu