Difficulties faced by regulated companies: a complex legal framework between prevention and resolution

When a bank, investment firm or insurance company runs into difficulties, the rules of the game change radically. The ordinary law governing companies in difficulty does not apply in the same way. A specific legal framework, largely influenced by European law, has been put in place to manage these exceptional situations. This article provides an overview of the main principles governing the difficulties of these financial players, directing you to more detailed resources for each aspect. Navigating this environment requires specialist expertise, and our law firm specialising in insolvency proceedings can give you the insight you need.

What is a regulated company in difficulty?

A regulated company is an entity whose activity is regulated and supervised by a public authority. These mainly include credit institutions (banks), investment firms, payment institutions and insurance companies. They are subject to permanent supervision by authorities such as the Autorité de Contrôle Prudentiel et de Résolution (ACPR) in France, or the European Central Bank (ECB) for the largest banks in the euro zone.

The notion of "difficulty" for these players goes beyond the simple cessation of payments. It encompasses any situation where financial soundness is compromised or likely to be compromised, thereby threatening customers or the stability of the system. It is this dimension that justifies a preventive and curative treatment that derogates from ordinary law, in order to intervene well before a crisis becomes irreversible.

Dual treatment: administrative vs. judicial

There are two ways of dealing with the difficulties of a regulated company: an administrative procedure, conducted by the supervisory authorities, and a judicial procedure, which adapts the rules of traditional collective procedures. The link between these two approaches is one of the cornerstones of the system.

The growing role of the supervisory authorities

Before even considering legal proceedings, the supervisory authorities (ACPR, ECB, or even the Single Resolution Board at European level) have an arsenal of preventive and recovery measures at their disposal. They can, for example, require a recovery plan to be put in place, prohibit the distribution of dividends, restrict certain activities deemed too risky or even remove managers from office. The aim of these interventions is to correct the institution's trajectory before its situation deteriorates to a critical level. The objective is clear: to favour a solution that avoids failure and its systemic consequences. For a more in-depth exploration of these mechanisms and the power of regulators, you can consult our detailed analysis of resolution procedures and the role of the supervisory authorities.

Adapted application of ordinary insolvency law

When safeguard, reorganisation or liquidation proceedings are unavoidable, they do not exactly follow the rules of the French Commercial Code. There are several major adjustments. For example, such proceedings cannot be opened without the assent of the ACPR, which is binding on the court's decision. The very definition of cessation of payments has been adapted for credit institutions, taking into account their inability to honour their commitments in the near future. In addition, the procedural bodies appointed by the court (administrator, liquidator) must work alongside the representatives appointed by the supervisory authority. The specific features of these legal proceedings under French law are detailed in our dedicated article.

Objectives and specific issues

This derogation is not simply an administrative complexity. It responds to fundamental objectives that go beyond the sole fate of the company concerned. Preserving global financial stability and protecting customers are at the heart of the system.

Preventing systemic risk

Systemic risk is the threat that an isolated failure, in a major bank for example, could spread to the entire financial system through a contagion effect. The collapse of one player could lead to the collapse of its partners, creating a chain reaction with devastating consequences for the economy. To contain this risk, specific rules ensure the continuity of operations on financial markets and in payment systems, even in the event of the bankruptcy of a participant. The legal instruments to secure financial markets and payment systems are designed to isolate a fault and prevent its propagation.

Enhanced customer protection

Bank and insurance customers benefit from special protection. In the event of default, specific guarantee mechanisms take over. The Fonds de Garantie des Dépôts et de Résolution (FGDR) compensates depositors up to €100,000 per person and per institution. Similarly, the Fonds de Garantie des Assurances de Personnes (FGAP) provides cover for life insurance policies. One practical consequence of these measures is that customers are often exempted from declaring their claims in the insolvency proceedings, greatly simplifying their procedures. Specific compensation mechanisms and guarantees offered to customers of banks and insurers are explained in detail on our website.

The European and international dimension

Because the financial sector is international by nature, managing cross-border crises is a major challenge. European law has introduced the principle of mutual recognition. In practical terms, a reorganisation measure or winding-up procedure initiated in one EU Member State is automatically recognised and has effect in all other Member States. This rule, which stems from directives such as the Banking Recovery and Resolution Directive (BRRD), aims to ensure unified and consistent management of the insolvencies of groups operating in several countries, while avoiding conflicts of jurisdiction.

Legal support strategies

The interaction between administrative resolution procedures, structured collective procedures and guarantee mechanisms creates a highly technical legal environment. For the directors, shareholders or major creditors of a regulated company, understanding the options, anticipating the actions of the regulators and defending their rights requires specialist legal expertise. A lawyer with expertise in this area can identify the right strategy, whether in a preventive phase, in negotiations with the authorities or in legal proceedings.

The complexity of these systems requires a strategic approach and in-depth knowledge of the interaction between administrative law and insolvency law. For an analysis of your situation and tailored advice, our law firm, experts in insolvency proceedings and the resolution of regulated companiesis at your disposal.

Frequently asked questions