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1. Member States shall ensure that resolution authorities have the powers necessary to apply the resolution tools to an entity referred to in Article 1(1), points (a) to (e), that meets the conditions for resolution referred to in Article 19(1) or Article 20(3).

2. Where a resolution authority decides to apply a resolution tool to an entity referred to in Article 1(1), points (a) to (e), and that resolution action would result in losses being borne by creditors, in particular policy holders, or would result in their claims being restructured or converted, the resolution authority shall exercise the power to write down or convert capital instruments and eligible liabilities in accordance with Article 35 immediately before or together with the application of the resolution tool. Any proceeds, generated after recovery of any reasonable expenses properly incurred in connection with the use of the resolution tools or the exercising of resolution powers as a result of the application of any resolution tool in accordance with paragraph 5, shall first compensate the entity’s policy holders and other creditors to the extent that their claims have been written down without being fully compensated. The conversion of eligible liabilities into capital instruments may be applied to insurance claims only in cases where the resolution authority justifies that the resolution objectives cannot be achieved through other resolution tools, or that the conversion of insurance claims would lead to better protection for policy holders compared to the use of any other resolution tool and the write-down of their claims.

3. The resolution tools are the following:

(a) the solvent run-off tool;

(b) the sale-of-business tool;

(c) the bridge undertaking tool;

(d) the asset and liability separation tool;

(e) the write-down or conversion tool. Resolution authorities may apply the resolution tools individually or in any combination, except for the asset and liability separation tool, which shall be applied only in combination with another resolution tool.

4. Where only the sale-of-business tool and the bridge undertaking tool are used, and where those tools are used to transfer only part of the assets, rights or liabilities of the undertaking under resolution, the residual insurance or reinsurance undertaking or a residual entity as referred to in Article 1(1), points (b) to (e), from which the assets, rights or liabilities have been transferred, shall be wound up under normal insolvency proceedings. Such winding-up shall be done within a reasonable timeframe, having regard to any need for that residual insurance or reinsurance undertaking or residual entity referred to in Article 1(1), points (b) to (e), to provide services or support pursuant to Article 45 in order to enable the recipient to carry out the activities or services acquired by virtue of that transfer, and any other reason that the continuation of the residual insurance or reinsurance undertaking or a residual entity as referred to in Article 1(1), points (b) to (e), is necessary to achieve the resolution objectives or comply with the principles laid down in Article 22.

5. The resolution authority and any financing arrangement acting pursuant to Article 81 or the resolution authority on behalf of any financing arrangement may recover any reasonable expenses properly incurred in connection with the application of the resolution tools or the exercising of the resolution powers in one or more of the following ways:

(a) as a deduction from any consideration paid by a recipient to the undertaking under resolution or, as the case may be, to the owners of the shares or other instruments of ownership;

(b) from the undertaking under resolution, as a preferred creditor;

(c) from any proceeds generated as a result of the termination of the activities of the bridge undertaking, the asset and liability management vehicle or the insurance or reinsurance undertaking in solvent run-off, as a preferred creditor.

6. Member States shall ensure that rules of national insolvency law on the voidability or unenforceability of legal acts detrimental to creditors do not apply to transfers of assets, rights or liabilities from an undertaking under resolution to another entity by virtue of the application of a resolution tool or the exercise of a resolution power.

7. Member States may confer upon resolution authorities additional tools and powers exercisable where an entity referred to in Article 1(1), points (a) to (e), meets the conditions for resolution referred to in Article 19(1) or Article 20(3), provided that:

(a) when applied to a cross-border group, those additional tools and powers do not pose obstacles to effective group resolution; and (b) those tools and powers are consistent with the resolution objectives and the general principles governing resolution laid down in Article 22.

8. Member States shall ensure that, to the extent that any of the resolution tools is not applicable to an entity within the scope of Article 1(1) as a result of its specific legal form of mutual undertaking or cooperative society, resolution authorities have the powers necessary to apply tools which are as similar as possible to those listed in paragraph 3 of this Article, including in terms of their effects.