Cashpooling is the centralization of group treasury management used to maximize the financial results of the cash management policy of a group. The past couple of years have seen an ever increasing demand for the implementation of European cross-border cashpooling systems, involving one or more Portuguese subsidiaries. As a rule the pool leader is located in a European country other than Portugal.
The system most commonly used is an automatic daily European cross-border zero-balancing system, ie any surplus cash as well as any fund needs at subsidiary level will either be swept to or covered from the European pool leader.
Legal nature of the cash transfers from pool member to the pool leader and from the pool leader to pool member
In the case of a cross-border zero-balance system, whenever a pool member has a long-balance, the cash transfers from the pool member to the pool leader constitute, in our opinion from a legal point of view, inter-company loans. Whenever a pool member has a short-balance, the cash transfers from the pool leader to a pool member are equally inter-company loans.
Legitimacy of cross-border inter-company cash transfer and inherent risks
In the case of loans made by the pool leader to a pool member, the legitimacy of such operations will have to be checked locally in accordance with the law of the country of origin of the pool leader.
We will only comment on the legitimacy of loans made by the Portuguese pool member to the pool leader.
No specific regulations have been enacted in Portugal as regards intra-group cashpooling arrangements. According to the Portuguese banking law (Decree-law 298/92 of December 30) only credit institutions and financial services companies can, as a professional activity, grant credit. This is the general rule. The banking law subsequently enumerates a series of exceptions to this rule. The first exception is shareholders' loans. However, this exception is not applicable if the pool member and the pool leader are sister companies. Another exception is the carrying out of group treasury operations This exception is normally invoked in the majority of cashpooling arrangements. However, also in this case a problem will arise if they are not in a vertical group relationship, but rather, are sister companies.
The banking law considers a group relationship as one defined in the Commercial Companies Code, according to which only companies in a verticle group relationship are considered to be in a group relationship. Therefore, if we abide by the strict wording of the law, in principle only pool members in a verticle relationship with pool leader could make inter-company loans under the terms referred.
In the case of sister companies this is not possible, as they are not included in the mentioned exceptions, and such loans are considered a regulated activity restricted to banks and financial services companies.
Nonetheless it is common practice in Portugal for "sister companies" to carry out cash-pooling and we know that the regulator has allowed such cashpooling arrangements in view of the consideration of a group as an economic unity and not as a legal one. However, if a strict interpretation of the law is made by the regulatory entity, heavy penalties could apply.
Sofia Gouveia Pereira