3.4 Management of Working Capital 71be either an actual bank account or a fictive account. Sub-accounts are used for
normal cash management transactions and are actual bank accounts.
If the group has a Group Account, all sub-accounts are bank balances on the top
account. When funds are paid in or withdrawn from a sub-account, the total avail-
able balance on the top account is instantly adjusted.
The top account is normally held by the parent company or a group treasury
company (master company). Any number of sub-accounts can be linked to the top
account.
Effective cash pooling and fictive cash pooling. There is a distinction between
effective cash pooling (“real cash pooling” or cash concentration) and fictive cash
pooling (notional pooling).
In effective cash pooling, the firm has one real top account for all participants
and each of the participants has its own sub-account. The two main methods of ef-
fective cash pooling are Zero Balance Pooling and Single Legal Account. Effec-
tive cash pooling can be legally complicated.
In fictive cash pooling, there is a notional top account. Notional pooling is le-
gally less complicated than effective cash pooling.
Single Legal Account. Single Legal Account Pooling is a cash concentration
technique based around a single legal master account structure in the name of the
parent or group financing company where the other participant accounts act as
memo accounts of that legal account.
Zero Balance Account. Zero balancing is a cash concentration technique where
all account balances are transferred into a nominated master account. A zero bal-
ance account is a bank account that is automatically brought to a zero balance each
day.^167 Debits are covered by a transfer of funds from a master account at the same
bank. Credit balances are automatically transferred to the master account.
Notional Pooling. Notional pooling is a cash management technique where ac-
count balances are offset without physical movement or co-mingling of funds, for
the purpose of interest compensation by the bank.
Legal aspects of cash pooling: general remarks. Legal rules that govern cash
pooling have only partly been approximated in the EU. For example, effective
cash pooling is influenced by company law rules and the Second Company Law
Directive. The Payment Services Directive will nevertheless have a major impact
on cash pooling (see below).
Cash pooling is always based on a contract between the participating compa-
nies and the bank.
Notional pooling is legally less complicated, because it does not result in any
intercompany loans. On the other hand, notional pooling raises at least two legal
questions. How will the costs and benefits be allocated between the participating
companies? Do company law rules (such as the purpose of the company and rules
on the distribution of funds to shareholders) prevent a participating company from
paying costs, where the benefits are enjoyed by other participating companies?
(^167) A Zero Balance Account was applied, for example, in the German case of BGH, judg-
ment of 16.1.2006 - II ZR 75/04 and II ZR 76/04.