An entity is deemed to be failing if there are objective factors indicating that it is likely to find itself in one of the following situations:
- it is no longer compliant with the capital requirements for continuing authorisation;
- it is unable to meet its payments;
- the value of its assets is lower than that of its liabilities;
- it is in need of extraordinary public financial support.
If the resolution authority concludes that the entity is failing or likely to fail, that no possible alternative private sector measures can be taken (such as a recapitalisation) and that resolution is in the public interest, then the entity in question can be placed under resolution. In this case, the resolution authority takes control of the entity, either directly or via a specially appointed administrator.