Resolution financing arrangements can be used to support the application of the sale of business tool or of the bridge institution tool whereby a set of assets, rights and liabilities of the institution under resolution are transferred to a recipient. In such a case, the resolution financing arrangement might have a claim against the residual institution or entity in its subsequent winding up under normal insolvency proceedings. That can occur where the resolution financing arrangement is used in connection to losses that creditors would otherwise have borne, including under the form of guarantees to assets and liabilities or coverage of the difference between the transferred assets and liabilities. To ensure that the shareholders and creditors left behind in the residual institution or entity effectively absorb the losses of the institution under resolution and improve the possibility of repayments in insolvency to the resolution-specific safety net, those claims of the resolution financing arrangement against the residual institution or entity, and claims that arise from reasonable expenses properly incurred, should rank in insolvency above the claims of depositors and of the DGSs. Since compensation paid to shareholders and creditors by resolution financing arrangements due to breaches of the no creditor worse off principle aims to compensate them for the results of resolution action, that compensation should not give rise to claims from those arrangements.
Text as published in the Official Journal, reproduced verbatim (including any typographical quirks of the source). For the authentic version, see EUR-Lex.
