The case of cash-pooling in European corporate group law : from general to concrete, practice-related regulation

Abstract

The main contribution of this thesis is the study of the mechanisms and alternatives for regulation of the cash-pooling contract. Cash-pooling, or treasury centralization, is a well-established but still very understudied phenomenon in the arena of corporate groups, where group companies cooperate to fulfill the liquidity needs of each other. The interest of the phenomenon is that cash-pooling represents an alternative for the allocation of resources different than the market that is available only to group companies. Previous studies of the law of the corporate group have contemplated the rules that apply to the group phenomenon in broad terms, but have not addressed specific practices or arrangements. Attention to cash-pooling, therefore, adds to the literature on corporate groups, providing a more grounded view on how this sort of group relationship develops, and whether corporate and insolvency law are equipped to deal with the challenges that it poses. The thesis is divided into four chapters. In the first chapter, the current state of the discussion about corporate groups is addressed. Corporate groups are back on the agenda of the European Commission, but the lack of attention to specific group transactions such as cash-pooling and the loose proposals that are being made are hindering the way forward. In the second chapter, the efficiency and legal architecture of cash-pooling are considered. Cash-pooling can be an efficient contract because it allows the group to work as an organization while each of the group companies maintains their legal personality. This chapter aims at explaining the (to date) mostly understudied clauses of the contract, and showing how cash-pooling differs from any other organizational capital market. In the third and fourth chapters, cash-pooling will be studied through the lens of corporate law. The main challenge of the cash-pooling contract for corporate law is the conflict of interest the parent company incurs because it is on both sides of the transaction. This chapter aims at identifying this source of opportunism and makes a proposal for regulation in light of the specific features of the contract. Finally, the last chapter discusses the risk that the cash-pooling contract poses for creditors of subsidiary companies within insolvency. Creditors at subsidiary companies face 4the risk that the insolvency of other group companies will be transferred to their credit claims through the wrong execution of cash-pooling.