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Cash Pooling and a Business Practice

by Dr Petr Polak, VŠB – Technical University of Ostrava, Czech Republic, and Swinburne University of Technology, Melbourne, Australia and Ondrej Simon, Head of the Group Financial Operations, âEZ, a. s., Praha, Czech Republic

Globalisation, calling for unification through necessity, is not a small task set before many companies – unifying procedures in several countries and/or localities, which have not always been simple and unambiguious. The process of incorporating and standardising has often been hindered by local customs and disagreements.

This article describes the legal and tax environment for companies working mostly in central and south east Europe in the energy sector, the possibility of real cash pooling, how it functions and mostly how it is introduced in âEZ Group, the largest Czech holding company.

With regard to the legal aspects of cash pooling, the Czech Republic differs from many other foreign legislations. The most remarkable difference in the case of pooling is in terms of the holding company, according to the Czech Commercial Law Code for trusts. In the case of one company the matter is simple. Pooling is only improving a two-sided contract for managing current accounts. In this way, some Czech banks have even a trust pooling set down in a contract (a type of notional pooling).

In the case of a trust, it is always necessary to fulfil some basic criteria in order for pooling to be carried out. The first condition is dealing with a company connected to the pooling structure. If the company were not wholly owned, a potential clash between the owners connected to the company and a bank might even end up in court as a final consequence. That is why banks limit trust pooling to groups where companies own more than 51% or where ownership has been proven.