- Is the cash pool beneficial for the participating parties? It should not be taken for granted that participating in a cash pool is always beneficial. It is important to substantiate that the cash-pool participants actually benefit from the cash pool.
Hence, an analysis should also consider the options realistically available for the cash-pool participants, e.g. opening a bank account at a local bank.
- What does the cash-pool leader do? The remuneration of the cash-pool leader should depend on functions performed and risks assumed. The role of the cash-pool leader can vary between two extremes:
- A mere service provider, with limited co-ordination functions, and
- An in-house bank and profit center, which also means much more complex functions and risks.
In cases where the cash-pool leader’s role is limited to co-ordination functions, it should earn a reward commensurate with the service functions it provides to the pool.
In the latter case, the cash-pool leader is entitled to a fee that rewards the cash-pool leader for its activities and assumed risks that go beyond mere co-ordination. This may include earning part or all of the spread between the borrowing and lending positions.
- Is there a guarantee in place? The particular facts and circumstances of the guarantee arrangement should always be considered, placing a special focus on the control and management of the risks assumed by the guarantor(s) and the benefit derived from the arrangement.
In the case of cross-guarantees, it is likely that individual participants have no control over the amount of the debt, or information about the other participants of the cash pool guaranteed. This uncertainty could become an issue from both an arm’s length and from a Swiss Commercial Law perspective.
- Have the cash-pool transactions been delineated from other inter-company (I/C) funding arrangements? It is recommended to have a treasury policy in place that governs long and short-term I/C funding.
- Short-term I/C funding can be resolved with revolving loans or cash-pool structures.
- Long-term funding needs should be met with term loans.
In this context, make sure that your cash pool is not used for long-term funding to avoid potential interest rate adjustments and tax assessments.