The solutions offered may differ in operational and technical details, but their essence remains the same.
In a solution based on statutory subrogation, the lead entity (it is a separate entity or a specially appointed group financial management company) acts as the so-called Settlement Agent (Ledera) for the Pooling Structure Participants.
Participants have separate current accounts, and the Agent/Leder has a technical clearing account in addition to the current account (main account) to sum up balances (this account does not have a clearing function during the working day and the Leader does not have access to it).
Typically, pooling participants hold daily accounts within the liquidity limits granted by the bank (their amount is usually agreed with the Leader).
These limits should be paid by the end of the day. If this does not happen, the debit in the account will be remunerated at an agreed rate. The mechanism of subrogacy for which the structure is based is the so-called right of satisfied creditor (Article 518 The Civil Code) i.e.
if at the end of the day there is no payment of the limit used by the participant concerned, the bank will be entitled to use the positive funds of another pooling participant to repay this debt (i.e. the bank will charge the account of the company with the excess financial amount of that unpaid limit).
Participant A, whose funds will be used to repay the debt of participant B, will enter into the rights of the satisfied creditor (and will therefore enter into the rights of the bank vis-à-vis participant B).
On the operational side, the bank at the end of the day sums up the balances of the participants' accounts (except for the Leader accounts) and makes (depending on the outcome of this action) the recognition or debit of the Head Leader account.
All outstanding limits on the Participants' accounts will be automatically paid to the Bank by the Leader from his Settlement Account before the end of the day. After that operation, where the outstanding limits remain on any participant account at the end of the day, the bank shall pay them back (zero the participants' balances).
The settlement day ends with zeroing of the participants' accounts and the Leader's clearing account (the net balance of the Participant's accounts is transferred to the Leader's account).
Participants shall not receive from the bank or the bank any bank interest on the cash pool offset balances, Balance transfers are made automatically, without the participation of cash pool participants.
A participant whose funds were used to repay the limit used by another participant shall have the right to reimburse the amount plus interest.
It is common practice to return (before the start of the next working day) all balances of the Participants' accounts to the states prior to the zeroing operation. Interest is charged by the Bank daily (payments between participants are usually made automatically once a month).
The legal structure of this option of pooling assumes that all its participants provide guarantees to the bank of repayment resulting from the contract of all liabilities of the other participants.
Another design that uses real transfers of funds between group companies is a solution often referred to by banks as ‘pooling claims’. The claim (the bank's) is the debt resulting from the outstanding debt in the current account by the company in the capital group.
The essence of the solution is to purchase from the Bank by a group member with positive funds in the bank account, debt claims in the current account of another group member, indebted for that purpose, and then to carry out a reverse transaction on another (or other indicated date – this solution may be flexible in terms of the timing of events).
At the end of the day, the bank checks the balance of funds in the accounts of the members of the group and manages the process of purchasing receivables.
If, for example, Company A ends the day with a negative balance — 500, and other members of the group, Company B and Company C have surpluses of respectively 300 and 350, the bank arranges the sale of receivables, e.g. in such a way that B buys the claim for 200, A company C 300. In fact, measures B and C served to cover the debt of A.
The following working day there are reverse operations (‘repayment’ of debt).
There are no direct flows between companies in the group – the bank acts as a party to the transaction, but associations of entities and all flows of funds are documented in the contract and in bank extracts.
In this service, banks use an algorithm that allows for proportional group allocation. The so-called correction factor shall be calculated.
Its practical dimension is as follows: if the sum of positive balances is greater than the sum of negative balances, the essence of the calculation is to determine what part of each positive balance will be used in the transaction.
Where the positive measures in the group are not sufficient to cover the debts of the other companies, the part of the debt to be covered shall be calculated.
It's just one of possible scenarios. Others may assume a ranking of debit or surplus companies. Some of the capital groups' strategies assume the order in which the balances are replenished and the transfer of positive balances.
This is important when the positive balances of the pooling participants are not sufficient to cover all the deficiencies of the remaining members of the group. This priority applies, for example, where the group companies A, B, C, D, E have the balances respectively: -200, -150, 300, -450, 100.
A pool manager at group level may decide that the order of “satisfaction” will be as follows: B, D, A, E, C (in the above example three companies have negative balances, but in the following days the situation may change and C and E may need funds). This means that from positive measures (400, i.e.
300+100) zeroed balance on company B account and reduced to -200 balance on company account D.
Banking systems are usually flexible enough to be able to handle these scenarios.
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