Cash pooling
The term cash pooling or liquidity bundling ( English cash 'liquidity' and pooling 'merge' ) denotes a group-internal liquidity equalization through a central financial management, mostly taken over by the group parent company, which removes excess liquidity from the group companies or compensates for liquidity shortfalls through loans . It's an element of cash management . Because of the arm's length principle ( arm's length principle) geldmarktangenäherte interest are (but without the banks' profit margins) calculated for the intercompany investments and borrowings.
Technically , a central "master account" is maintained at the parent company, which manages both the financial investments and the borrowing of the subsidiaries. External money and capital markets, for example at banks , are only accessed when the group's internal liquidity balancing is insufficient to maintain solvency . In the balance sheet , in the case of financial investments at the subsidiaries, there is an asset swap (instead of "receivables from bank balances": "Group receivables"), when borrowing, depending on the use of the funds borrowed, either a liability swap (when used to repay external debts - instead of "bank liabilities": " Group liabilities ") or an increase in assets and liabilities (when borrowing for the purpose of making investments - more liabilities, more assets).
Real and fake cash pooling
Real “physical” cash pooling
Interest rate optimization is achieved through the actual transfer of funds between the “master account” and the individual subsidiary accounts of the group subsidiaries. In this context, one also speaks of physical cash pooling or cash concentration .
Fake cash pooling
Interest optimization is achieved through the fictitious offsetting of the value date balances of the secondary accounts. There is no effective transfer of the balances to the main account. Only the balances of the secondary accounts are fictitiously compensated and the interest on the main account effectively calculated. This type of cash pooling is also called notional pooling . An extended variant of this pooling allows the connection of different currencies without the physical flow of funds and the transaction risk of the currencies being eliminated with simultaneous interest optimization.
Legal Aspects
In the case of financial investments, the subsidiary has a repayment claim against the parent company, which it can only assert when it leaves the cash pooling system. As long as she remains a member of the pool, a current account-like offset situation arises . These agreements only become problematic when a financial crisis begins at the parent and / or subsidiary.
Legal development
A characteristic example of the differences in legal development is the principle of capital preservation in Germany and Austria . Based on the “Bremer Vulkan” decision of the Federal Court of Justice in Germany, ever stricter requirements were set for the permissibility of loans within a group. Here the BGH had already sharply criticized the existing cash pooling. On November 24, 2003, another BGH decision ostensibly resulted in a further tightening of the capital maintenance rules at the GmbH . The delayed repayment claim of a GmbH against the “master account” at the parent company, described above, was not sufficient for the highest German court. This restrictive, creditor-protecting stance was also shown in two further judgments of January 16, 2006, in which the BGH ruled that the corporate law principle of real capital raising also applies to the cash pool system. In the case of cash pooling, the BGH threatens the GmbH shareholders with the claim from § 19 GmbHG , while managing directors can make themselves liable for damages under § 43 GmbHG. This makes it difficult or even prevents the raising of capital for a company in a cash pool group.
In addition, the possibilities of avoiding insolvency in the cash pooling process in Germany expose the creditors of a company that takes part in the cash pooling process to an increased risk of having to return payments received from the cash pool group.
These legal obstacles to an economically sensible system were largely removed by the law that came into force on November 1, 2008 to modernize GmbH law and to combat abuse . It expressly approves cash pooling if the subsidiary's refund claim is full and liquid (due at any time) ( Section 30 (1) sentence 2 GmbHG). Furthermore, within the scope of raising capital, it is now permissible for the subsidiary to be able to repay the contribution made by the shareholder if the company's claim to repayment is full and liquid. If he is not, the managing director is still liable ( § 43 GmbHG). He is also liable if he pays out and later does not terminate the loan without notice according to § 490 BGB and demands it back from the shareholder if his financial situation deteriorates .
In Austria, the Equity Replacement Act (EKEG) has now come into force, which provides at least some guidelines for how cash pooling can also be operated in a group's crisis. The relationship between the right to substitute equity capital and the ban on the return of contributions (“Fehringer decision”), which was further developed by the Supreme Court, remains unclear in Austria.
Experience with cash pooling in recent years has shown that the legal framework for cross-border cash management systems is not even sufficiently harmonized within the European Union . In addition, in the legal systems of most of the new member states, the areas of law essential for cash pooling are not yet coordinated in such a way that clear recommendations for the design of a cash pool are possible. Only in Western Europe are both local and cross-border cash pools already established practice, although here too the respective local peculiarities of tax and company law must be observed.
In practice, this legal uncertainty could not stop the triumph of cash pooling. The need of most corporations for a functioning cash management system was in many cases more important than the clear clarification of all legal questions. Often the actual balance of power in a corporation may have been decisive for the introduction and design of cash pooling. Nevertheless: A few basic rules should be observed with every cash pooling.
Most important basic rules
- The contract design must be balanced - both in relation to the bank and between the pool companies.
- The cash pool must be transparent - regular reporting and inspection rights for all pool companies are necessary.
- Credit limits and conditions must be set and continuously adjusted for all pool companies.
- Before introducing cash pooling, the legal framework for each individual pool company should be checked.
- The cash pool has the arm's length principle note (see article arm's length principle )
Successful introduction
In the introductory phase, it has proven useful to send out questionnaires to all future pool participants and to hold a workshop in which the structure and functionality of cash pooling are explained. Questions that are often asked relate to the advantages and disadvantages for each pool company, the personal liability of the manager , the staggering of debit and credit interest, the assessment of the creditworthiness within the cash pooling system, etc. These questions become answered satisfactorily, nothing stands in the way of the successful introduction of cash pooling.
advantages
- Optimal allocation of internal liquid funds and thus maximum reduction of outside capital
- central overview of the liquidity of the group companies
- Interest rate optimization through in-house investments / loan provision
- Interest optimization through central credit management
- Bank loans are spared
Risks
- Lump risk due to lack of scatter
- Increase in abstract insolvency risks
- Loss of economic independence from subsidiaries
- Requires extensive monitoring and control
Open questions
While in Germany the amendment to the GmbH Act largely allows cash pooling again, there are some areas of law in Austria in which no satisfactory answers can currently be given on the subject of cash pooling. These include questions about banking licenses or avoiding consulting fees. The correct construction of cash pooling is crucial to whether these legal uncertainties lead to difficulties.
literature
German literature:
- Holger Altmeppen : The limits of the permissibility of cash pooling . In: Journal of Business Law (ZIP) . Cologne 2006, p. 1025 ff .
- Karl-Josef Fassbender: Cash pooling and capital replacement law in the group (= publications on commercial law . Volume 174 ). Duncker and Humblot, Berlin 2004, ISBN 3-428-11645-3 (Diss. Düsseldorf).
- Markus Jauch: Cash pooling as a form of corporate financing. An economic view under the influence of legal barriers . 1st edition. VDM, Saarbrücken 2007, ISBN 978-3-8364-1602-3 .
- Andreas Pentz: Cash pooling and duties of the supervisory board according to the more recent case law of the BGH . In: Andreas Pentz, Achim Sollanek (ed.): Cash pooling in the group . Hans Böckler Foundation, Düsseldorf 2005, ISBN 3-86593-016-6 .
- Andreas Pentz: Individual questions about cash management and capital preservation . In: Journal of Business Law . Cologne 2006, p. 781 ff .
- Hans-Joachim Priester: Raising capital in the cash pool - change of course by the MoMiG? In: Journal of Business Law . Cologne 2006, p. 1557 ff .
- Jürgen Sieger, Johannes Wirtz: Cash pool: failed capital measures and healing in the law of the GmbH . In: Journal of Business Law . Cologne 2005, p. 2277 ff .
- Kai Zahrte: Financing through cash pooling in the international multi-level group according to MoMiG . Duncker & Humblot, Berlin 2010, ISBN 978-3-428-13446-5 .
Austrian literature:
- Clemens Billek: Cash pooling in the group . Springer, Vienna / New York 2008, ISBN 978-3-211-09421-1 .
- Barbara Polster-Grüll, et al .: Cash Pooling. Modern liquidity management from a financial, legal and tax point of view . 2nd Edition. Linde, Vienna 2004, ISBN 3-7143-0008-2 .
- Barbara Polster-Grüll, et al .: Cash Pooling. Practice, Law and Taxes . Linde, Vienna 2002, ISBN 3-7073-0220-2 .
Swiss literature:
- Beat Barthold: Cash pooling - a legal Pandora box . In: Finance and Economy . February 25, 2004, p. 38 ( fuw.ch ).
- Oliver Blum: Cash Pooling: Corporate Law Aspects . In: Current Legal Practice (AJP) . Zurich 2005, p. 705 ff .
- Oliver Blum: The pitfalls of cash pooling . In: Neue Zürcher Zeitung (NZZ) . November 15, 2005, p. 25 ( nzz.ch ).
- Udo Giegerich: Central Cash Management Techniques . In: Swiss Trustee (ST) . Zurich 2002, p. 869 ff . ( treuhaender.ch [PDF]).
- Luca Jagmetti: Cash pooling in the group . Dike, Zurich 2007, ISBN 978-3-03751-042-1 (diss.).
- Lukas Handschin: Some thoughts on cash pooling in the group . In: François Bohnet, Pierre Wessner (eds.): Droit des sociétés. Mélanges en l'honneur de Roland Ruedin . Basel / Geneva / Munich 2006 ( unibas.ch [PDF]).
- Thomas Kull: Cash Pool - Crash Pool? In: Hans Michael Riemer, Moritz Kuhn, Dominik Vock, Myriam Gehri (eds.): Swiss and international enforcement law. Festschrift for Karl Spühler on his 70th birthday . Zurich / Basel / Geneva 2005.
