Accession To Cash Pools - Dos And Don'ts

Author:Dr. Martin Weber, Michael Nordin, Jean Jacques Ah Choon and Pietro Sansonetti
Profession:Schellenberg Wittmer

When a Swiss company shall become a member of a group-wide cash pool, certain restrictions and conditions imposed by Swiss corporate and tax law must be carefully considered. Particular caution should be taken if any upstream securities are to be provided by the Swiss pool member. Non-compliance can in particular lead to invalidity, adverse tax consequences and personal liability for directors and officers.


    International corporate groups often have a group-wide central management of the cash and liquidity positions of their affiliates ("Cash Pool"), for the purpose of optimizing group-wide liquidity management, reducing overall financing costs and improving yields on excess liquidity.

    In a "Physical Cash Pool", a group finance company assumes the role of "Pool Master" and operates a "Master Account" with a third-party "Pool Bank", to which all bank accounts of the group's affiliates ("Pool Members") are automatically transferred and credited or debited on a regular basis. The individual accounts of the affiliates are either balanced-out to zero ("Zero Balance Cash Pool") or to a determined target amount, leaving a certain liquidity cushion outside of the Cash Pool at the disposal of each of the Pool Members ("Target Balance Cash Pool").

    Unlike a Physical Cash Pool, a "Notional Cash Pool" is based on a virtual pooling of the individual cash positions of a corporate group for the purpose of calculating the interest on the aggregate consolidated credit or debit balance amount. Each Pool Member keeps its own account with the Pool Bank, without its credit or debit balance being physically transferred to a Master Account.

    In both Physical and Notional Cash Pools, the Pool Members are occasionally requested by the Pool Bank to agree to joint and several liability, or to post an upstream guarantee, pledge or other security ("Upstream Security") for any possible payment default by the Pool Master or by any other Pool Member.

    For the purposes of this newsletter, we assume that a Swiss affiliate of an international corporate group is considering to join a Physical Cash Pool operated by its direct or indirect parent company, or by any of the parent's direct or indirect subsidiaries ("Upstream Cash Pool"). We further assume that the Swiss Pool Member contributes a positive credit balance to the Cash Pool.

    If the Swiss Pool Member contributes a negative debit balance to a Cash Pool or if the Pool Master is a direct or indirect subsidiary of the Swiss Pool Member ("Downstream Cash Pool"), there is less concern, since Swiss law imposes fewer restrictions in those cases. Accordingly, this newsletter does not discuss such cases, nor does it consider the implications where a Swiss company serves as the Pool Master.


    The Swiss Pool Member contributing a positive credit balance to an Upstream Cash Pool grants an upstream (or cross-stream)...

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