On August 1, the Association for Financial Markets in Europe (AFME) published model clauses (Model Clauses) in relation to contractual “bail-in” requirements contained in the EU Bank Recovery and Resolution Directive (BRRD). The BRRD requires certain parties to include “bail-in” clauses in contracts that create eligible liabilities and are governed by laws outside of the European Union.
The bail-in clauses effectively require creditors to: (1) recognize that the liability under the contract may be subject to write-down and conversion powers; and (2) agree to be bound by any reduction of the principal or outstanding amount due, or any conversion or cancellation instigated by an EU resolution authority, which is designated under the BRRD by each EU member state and may be a national central bank, competent ministry or other public administrative authority.
In response to the BRRD, AFME developed the Model Clauses to assist industry compliance. The Model Clauses cover entities organized in the United Kingdom, France, Italy, Belgium and Germany, respectively.