(61)As a rule, resolution authorities should apply the write-down or conversion tool in a way that respects the pari passu treatment of creditors and the statutory ranking of claims under applicable insolvency law. Losses should therefore first be absorbed by regulatory capital instruments and should be allocated to shareholders either through the cancellation or transfer of shares or through severe dilution. Where that is not sufficient, subordinated debt should be converted or written down. Senior liabilities should only be converted or written down where the subordinate debt has been converted or written down entirely. Challenging the reduction of the principal amount of the instrument or liability or its conversion resulting from the exercise of write-down or conversion powers should only be possible under the law of the Member State of the resolution authority that exercised the write-down or conversion powers.