What is a Cash Pooling Agreement?

The Cash Pooling Agreement is not formally regulated under Spanish law and shares particularities with the current account agreement, the loan agreement, and the sales commission agreement.

What is a Cash Pooling Agreement?

The Cash Pooling Agreement is a system facilitating financial operations, especially interesting for companies operating in different countries. Under this agreement, one of the group companies (managing or pooler company) manages a centralized bank current account (pool or master account) into which the assets and liabilities of the (peripheral) bank current accounts of the different companies are dumped regularly, generally daily.

As a result, a daily set of automatic inter-company loans optimizes the group’s global position through a single balance by each bank.

Requirements of the Cash Pooling Agreement

Despite its lack of formal regulation in Spain, in practice, a cash pooling agreement must comply with a series of requirements:

  • It is necessary to sign an agreement with the bank(s) with which the single treasury account agreement is to be entered. The agreement must include the agreed conditions for the cash pooling system: calculation of interest, guarantees required by the bank, deadlines for the interest settlement
  • It is necessary to sign an agreement between the pooler company and the remaining participating companies. It may be a single agreement for all the companies in the group or a separate one for each one of them. It should indicate, among other things, the type of cash pooling to be carried out, the term for the settlement of interest and updating of positions, and the cost and attribution to each company in the group.
  • Formal approval of the cash pooling agreement according to Articles 160 and 162 of the Spanish Companies Act
  • Since it is a significant transaction between the company and related parties, it is advisable to mention its use in the notes to the company’s annual accounts
  • Since it involves operations between companies of the same group, it is advisable to review them from a tax perspective to ensure that they comply with transfer pricing rules.

Advantages of the Cash Pooling Agreement

  • It allows companies a unified fiscal policy, increasing their liquidity resources and reducing their external financing costs
  • It allows the company to have a global overview of its existing treasury, optimizing the control of available assets
  • It makes it easier to obtain external financing.

Drawbacks of the Cash Pooling Agreement

  • If there is only one shareholder in the company, it can be viewed that dividends are being paid to the sole shareholder, which would be contrary to Article 273 of the Spanish Companies Act
  • If the bank account is not properly controlled, there is a risk of confusing the company’s assets
  • The debts of the managing or pooler company vis-à-vis the group company will be considered subordinate in insolvency proceedings, in case of insolvency of any of the group’s companies

The company’s proper management of its financial planning and a cash pooling agreement with the necessary clauses can mitigate and remove these risks.

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If you need to draft a Cash Pooling Agreement or require further information on this subject, please do not hesitate to contact us.

Please note that this article is not intended to provide legal advice.

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