Sweep account

The term cash pooling and liquidity aggregation ( engl. "cash " = liquidity and " pooling" = merge ) indicates an intra-group liquidity adjustment by a central, mostly acquired from the parent company financial management, the Group companies withdraw excess liquidity or liquidity shortfalls compensates by loans. There is an element of cash management. Because of the arm's length principle ( " arm's length" principle) be ( but without the banks' profit margins ) calculated for the intra-group deposits or borrowings geldmarktangenäherte interest.

Technically, a central " master account " is performed this at the parent company, which manages both the investments and the borrowings of its subsidiaries. Only when the intragroup liquidity balance to preserve the solvency is insufficient, there is an access to external financial and capital markets about banks. Balance sheet takes place at the subsidiaries in the case of investments in an asset swap (instead of "Receivables from bank deposits ", " Group claims" ) in borrowings depending on the use of funds raised either a passive exchange ( when used for the repayment of external debt - instead of " bank liabilities ": " consolidated liabilities ") or an active -passive at stimulating ( in borrowing for the purpose of making the investment - more liabilities, more assets ).

• 2.1 Legal Developments
• 2.2 Main principles
• 2.3 Successful introduction

• 4.1 Open Questions

Genuine and fake cash pooling

True " physical " cash pooling

The interest optimization is achieved by the actual transfer of funds between the "Master Account" and the individual sub-accounts of the subsidiaries. One speaks in this context of the physical cash pooling or "Cash Concentration".

Spurious cash pooling

The rate enhancement is achieved through the fictional Offsetting the value date balances of the sub-accounts. There is no effective transfer of balances to the main account. It balances the sub-accounts are purely fictional compensated and calculates the interest on the principal account effectively. This kind of cash pooling is also called " Notional Pooling ". An advanced variant of this pooling allows connection of various currencies with no funds flow physically and transaction risk, the currency is switched out at the same time optimizing interest.

Legal Aspects

In the case of deposits, the subsidiary has against the parent company of a repayment claim, however, they may assert only when exit from cash pooling. As long as they remain a member in the pool, creates a kontokorrentähnliche off position. These agreements are only problematic if at parent and / or subsidiary financial crisis begins.

Legal development

A characteristic example of the differences in the development of law is the principle of capital maintenance in Germany and in Austria. Starting from the " Bremer Vulkan " decision of the Federal Court in Germany were always placed more stringent requirements on the admissibility of loans within a group. Here, the Supreme Court had already criticized the existing cash pooling sharp. On 24 November 2003 another Supreme Court decision brought ostensibly a further tightening of capital maintenance rules in the GmbH. The above-described time -delayed debt repayment claim a legal GmbH against the master account at the parent company did not meet the highest German court. This restrictive, believer protective attitude was also reflected in two other judgments of 16 January 2006, in which the Supreme Court has found that the corporate principle of real capital raising in the cash pool system is considered. The Supreme Court threatens the cash pooling the limited liability shareholders with the use of Limited Liability Companies Act § 19, while managing to make 43 Limited Liability Companies Act liable for damages according to §. This makes it difficult or even prevents the raising of capital for a company in a cash pool group.

In addition, existing in Germany cash- pooling procedures possibilities of Voidable set from the creditors of a company that participates in the cash pooling process, an increased risk of having to grant received from the cash pool consolidated payments.

These legal obstacles of an economically rational system were largely eliminated, which came into force on November 1, 2008 law on the modernization of the GmbH law and to combat abuses. It has emphasized the cash pooling, if the refund claim by the subsidiary fully satisfying and cash ( due at any time ) (§ 30 para 1 sentence 2 of Limited Liability Companies Act ). Furthermore, in the context of raising capital now permissible for the subsidiary to the shareholders must repay the deposit provided by him again when the refund claim of the company is fully satisfying and liquid. If it is not, is still liable to the managing director ( Limited Liability Companies Act § 43 ). He also liable if he pays, and later the loan is not 490 BGB without notice announces pursuant to § and return calls from shareholders when a worsening of its financial situation.

In Austria, the equity substitution law ( EKEG ) has entered into force, which gives at least some guidance on how cash pooling can also be operated in the crisis of a group. The relationship between equity substitution law and the continued developed by the Supreme Court ban on the return of contributions ( " Fehring Decision" ), however, remains unclear in Austria.

Experience with cash pooling in recent years have shown that the legal framework for cross-border cash management systems are not even sufficiently harmonized within the European Union. In addition, the legal systems of most new Member States which are essential for cash pooling areas of law are not coordinated so that clear recommendations for the design of a cash pool are possible. Only in Western Europe, both local and cross-border cash pools are already established practice, although here too, pay attention to the particular local characteristics of the tax and corporate law.

In practice, this uncertainty could not stop the triumph of cash pooling. The desire of most corporations for a functioning cash management was more important than the unique settlement of all legal matters in many cases. Often the actual power relations within a group may have been crucial for the implementation and configuration of the cash pooling. Nevertheless, some basic rules should be followed at each cash pooling.

Important ground rules

• The contracts 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.
• For all pool companies credit limits and conditions must be determined and adjusted continuously.
• Prior to the introduction of a cash pooling system, the legal framework for each individual pool company should be considered.
• The cash pool must be the " arm 's length " principle (please refer to Article arm's length principle )

Successful introduction

During the implementation phase has been proven to send out questionnaires to all future pool participants and to organize a workshop, are explained in the structure and functioning of the cash pooling. Questions that are asked often refer to the advantages and disadvantages for each pool Society, the personal liability of directors, the staggering of the debit and credit interest, the assessment of credit within the cash pooling, etc. If these questions satisfactorily answered, the successful introduction of a cash pooling is no obstacle.

Benefits

• Optimal allocation of internal cash and thus maximum reduction of debt
• Central overview of the liquidity of the Group companies
• Interest optimization by internal investment / loan commitment
• Interest optimization by centralized credit management
• Bank loans are spared

Risks

• Concentration of credit risk by lack of diversification
• Abstract increase insolvency risk
• Loss of economic independence of subsidiaries
• Requirement elaborate monitoring and control

Open Questions

While the change of the Companies Act permits in Germany, a cash pooling largely again, there are in Austria, however, some areas of law in which no satisfactory answers about cash pooling can be given. These include the issues of banking license or avoidance of advisory fees. The correct construction of the cash pooling is crucial in determining whether these legal uncertainties lead to trouble.

References

German Literature:

• Altmeppen, Holger: The limits of admissibility of cash pooling, in: ZIP ( Journal of Economic Law [Cologne] ) 2006 pp. 1025 ff
• Fassbender, Karl -Josef: Cash Pooling and capital replacement right in the Group, Diss Dusseldorf, Berlin 2004 ( = Papers on Economic Law 174 band ), ISBN 3-428-11645-3.
• Jauch, Markus: cash pooling as a form of corporate finance - An economic consideration under the influence of legal barriers, 1st Edition, Saarbrücken, August 2007, ISBN 978-3-8364-1602-3.
• Pentz, Andreas: cash pooling and duties of the Supervisory Board following the recent case law of the BGH, in: Andreas Pentz / Achim Sollanek: cash pooling within the Group, Dusseldorf 2005.
• Pentz, Andreas: individual questions on cash management and capital preservation, in: ZIP ( Journal of Economic Law [Cologne] ) 2006 p 781 ff
• Priest, Hans -Joachim: raising capital in the cash pool - change of course MoMiG, in: ZIP ( Journal of Economic Law [Cologne] ) 2006 pp. 1557 ff
• Winner, Jürgen / John Wirtz: cash pool: Faulting capital measures and healing in the right GmbH, published in ZIP ( Journal of Economic Law [Cologne] ) 2005 p 2277 ff
• Zahrte, Kai: financing through cash pooling in international multi-layered corporate after MoMiG, 2010, ISBN 978-3-428-13446-5
• A literature list, compiled by ZBW - German National Library of Economics.

Austrian Literature:

• Billek, Clemens: cash pooling within the Group, 2008, ISBN 978-3-211-09421-1
• Upholstery Grüll, Barbara et al.: Cash pooling. Modern liquidity management from a financial, legal and tax perspective, 2nd edition, Vienna, 2004.
• Polster-Grüll/Berghuber/Dolezel/Kremslehner/Polster/Rieder/Taucha: Cash Pooling - Practice, Law and Taxation, 2002, ISBN 3-707302202

Swiss literature:

• Barthold Beat: Cash Pooling - a legal Pandora's box, in: Finance and Economy 25 February 2004 p 38
• Blum Oliver: Cash Pooling: Society Legal Aspects, in: AJP ( Current legal practice [ Zurich ] ) 2005 p 705 ff
• Blum Oliver: Pitfalls of cash pooling, in: NZZ (Neue Zürcher Zeitung ) November 15, 2005 p 25
• Giegerich Udo: Techniques of the central cash management, in: ST ( Swiss trustee [ Zurich ] ) 2002 p 869 ff, PDF.
• Jagmetti Luca: cash pooling within the Group, Diss Zurich 2007, ISBN 978-3-037510421.
• Handschin Luke: Some reflections on the cash pooling in the group, in: François Bohnet / Pierre Wessner (ed.): Droit des sociötös, Mélanges en l' honneur de Roland Ruedin, Basel / Geneva / Munich 2006, PDF.
• Thomas Kull: Cash Pool - Crash pool, in: Hans Michael Riemer / Moritz Kuhn / Dominik Vock / Myriam Gehri (ed.): Swiss and International law enforcement, Festschrift for Karl Spühler 70th birthday, Zurich / Basel / Geneva 2005?.