76 3 Reduction of External Funding Needs
all participating companies; avoidance of unlimited joint and several liability for
deficits in the top account; early termination rights before the actual insolvency of
any participating company; and the use of pool-free accounts.
Contracts between the participating companies. The participating companies
should agree on: the internal legal framework in general; the accounts that belong
to the pool and pool-free accounts; credit limits, the use of zero balancing or, al-
ternatively, the minimum balance that is pool-free and will not be transferred to
the top account; credit terms (interest, collateral, set-off); the division of costs and
the fees of the master company; power of attorney for the master company to
manage the accounts that belong to the pool; disclosure of information (in particu-
lar, information about the financial status of the participating companies); the con-
tract period and rights to terminate the contract; choice of law; and dispute resolu-
tion.^201
Contracts between the bank and the participating companies. The bank and the
participating companies should agree on: the consent of the participating compa-
nies to the transfer of funds to the top account; interest payable on the balance;
collateral; duty to disclose information to the bank; the contract period and rights
to terminate the contract; choice of law; and dispute resolution.^202
The bank’s collateral. In effective cash pooling, the bank may need collateral,
because the balance on the top account can become negative. It is legally less
complicated to furnish the collateral where the top account is in the name of a
company that has assets. It can be more complicated to furnish collateral where
the top account is in the name of a holding company or a treasury company that
does not have assets that can be used as collateral. In that case, the collateral
would have to be given by the participating companies. This would again make it
necessary to analyse to what extent the giving of collateral complies with com-
pany law rules on the distribution of funds to shareholders and other use of com-
pany funds.^203
The duty of care or fiduciary duties of senior executives or the board. The sen-
ior executives or the board of a participating company typically owe a duty of care
or fiduciary duties to the company (see Chapter 17). These duties are applied gen-
erally and therefore even in cash pooling.
In order to comply with their duties in cash pooling, senior executives or the
board of each participating company should focus on three areas in particular: (1)
the balance of costs and benefits (terms, risks, collateral); (2) the creditworthiness
of other participating companies, other participating companies’ duties of disclo-
sure, collateral received by the company, the right to terminate the agreement in
the event of material adverse change of the creditworthiness of a participating
company, credit limits; and (3) termination of the agreement in the event of mate-
rial adverse change.^204
(^201) Karollus M, Rechtsfragen des Cash Pooling (2003).
(^202) Ibid.
(^203) Ibid.
(^204) Ibid.