Cash pooling. The key to cash flow?

13 May, 2024

How do you optimise your cash and liquidity management and reduce reliance on external funding and associated funding costs?

That was our client’s goal when they came to us for help in setting up a cash pooling arrangement. Headquartered in Germany and the parent company of a multinational, our client would function as the cash pool guide, and their three international subsidiaries located in Poland, France and Italy would be the participants.  

Centralising cash resources. Streamlining liquidity. 

Rules surrounding cash pooling differ across territories, particularly when it comes to remuneration and interest rates. So, understanding the fiscal and regulatory issues associated with cash pooling in each of the subsidiary jurisdictions was the starting point for our team of legal experts.  

Our multijurisdictional team – comprising legal experts from Germany, Poland, France and Italy – worked together to define the roles and responsibilities of each entity and the terms of the cash pool arrangement. Armed with this information, they drafted and executed legal agreements between each entity to ensure transparency and clarity throughout the process.  

A delicate balance  

Unlike a conventional contract, where local management typically adheres to directives from the parent company, the dynamics of cash pooling necessitate subsidiaries to safeguard themselves against the threat of insolvency. In some cases, this precautionary measure may extend to personal liability for the managing partner. 

From the outset, it was clear that the terms governing the cash pooling system had to withstand external scrutiny. The challenge for our team was to secure optimal terms for our client - serving as both the parent company and the steward of the cash pool - and, at the same time, uphold the financial well-being and autonomy of its subsidiaries. 

Achieving this delicate equilibrium underscores the nuanced and multifaceted nature of navigating the intricacies of cash pooling within a diverse corporate landscape. Our connected approach meant we could deliver the expertise that our client needed to reach a successful conclusion. 

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