Titel I – Gegenstand, Anwendungsbereich und Begriffsbestimmungen

1.1. Pursuant to Article 47(6) of Directive 2014/59/EU (the Bank Recovery and Resolution Directive, BRRD)¹ , these guidelines set out the circumstances in which it would be appropriate, when applying the bail-in tool set out in Article 43 or the writedown or conversion of capital instruments set out in Article 59, to take one or both of the following actions:

• (a) cancel existing shares or other instruments of ownership or transfer them to bailed-in creditors;
• (b) dilute existing shareholders and holders of other instruments of ownership as a result of the conversion of:
• (i) relevant capital instruments issued by the institution pursuant to the power referred to in Article 59(2) of the BRRD; or
• (ii) eligible liabilities into shares or other instruments of ownership issued by the institution under resolution pursuant to the power referred to in Article 63(1)(f) of the BRRD.

Article 47(1) requires that action (b) may only be taken when, according to the valuation carried out in accordance with Article 36, the institution under resolution has a positive net asset value, and that the conversion shall be conducted at a rate of conversion that severely dilutes existing holdings of shares and other instruments of ownership.

2. Definitions

In the context of these guidelines, the following definitions apply:

• (a) ‘cancellation’ of shares means that shares are cancelled and the shareholders’ economic claims and other rights of ownership are completely erased on those shares;
• (b) ‘transfer’ of shares means that shares or other instruments of ownership are transferred to creditors and the original shareholders’ future economic claims and other rights of ownership on those shares are erased;
• (c) ‘dilution’ means that new shares or other instruments of ownership are issued and, as such, the existing shareholders’ future economic claims and other rights are proportionately reduced but are not necessarily erased. They may retain some economic and administrative (voting) ownership rights² .

¹ Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (OJ L 173, 12.6.2014, p. 190)

² Dilution may be combined with ‘cancellation’ or ‘transfer’ with the effect that some but not all shares are cancelled or transferred.