Cash pooling explained: Law and benefits of centralised liquidity management in corporate groups

Many corporate groups now manage their liquidity centrally. The aim is to utilise available funds efficiently and reduce financing costs.

A frequently used instrument for this is cash pooling.

What is cash pooling?

In cash pooling, the accounts of various Group companies are pooled centrally.

Typical targets are:

• Better liquidity management 
• Lower financing costs 
• More efficient use of free funds 

In particular, a distinction is made between physical and virtual cash pooling.

Why is cash pooling legally relevant?

In international corporate groups in particular, there are additional tax and cross-border regulatory issues. Different national requirements can make the organisation of pooling structures significantly more complex. Companies should therefore consider not only the corporate law perspective, but also the tax and financing law perspective.

Cash pooling not only concerns financial issues, but also corporate law and liability issues.

Particularly relevant are

Capital maintenance

Payments within the group of companies may not violate capital maintenance regulations.

Liability risks of the management

Managing directors must ensure that liquidity measures are taken in the interests of the company.

Documentation and contract structure

Missing or unclear agreements can trigger considerable risks.

Typical practical risks

Cash pooling often becomes particularly critical in crisis situations.

Problems arise, for example, with:

• Insolvency of individual companies 
• Lack of ability to repay 
• Unclear distribution of economic risks 

A clean legal structure is particularly important here.

Practical tip: Clear pooling agreements

Important points are:

• Clear responsibilities 
• Transparent billing systems 
• documented decision-making processes 
• Ongoing liquidity control 

Conclusion

In practice, banks and investors are also placing increasing value on transparent liquidity structures. Professionally organised cash pooling systems can therefore not only create efficiency, but also have a positive impact on the financing capability of a group of companies.

Cash pooling can offer considerable economic advantages. However, this requires a legally sound organisation and ongoing monitoring of the structure.

If you have any questions on this or other topics, please contact us - we will be happy to advise you.

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