Financial Standing – Twist, Stick or Bust? by Laura Hadzik

IAA HANOVER 27.09.2010 040

The recent Transport Tribunal decision, upholding the revocation of the Operator’s Licence of Reading-based operator, Truckit 247, by Western Traffic Commissioner, Sarah Bell, in November 2011, provides a stark reminder for operators of the potentially devastating consequences for their business should they be unable to demonstrate, to the satisfaction of the Traffic Commissioners, that they are the appropriate financial standing. Truckit 247 was granted an Operator’s Licence, authorising the use of 1 vehicle and 1 trailer, in April 2010, subject to it demonstrating, by the production of 3 months’ bank statements, that it had access to £8,100 (and therefore satisfied the requirement to be of the appropriate financial standing) by October 2010.  Truckit 247 provided bank statements in December 2010; however, these did not show access to the required sum.  Then, in June 2011, the Office of the Traffic Commissioner requested original bank statements for the period from March until June 2011; however, the average balance over the 3 month period was £6,690 (not the £8,100 required).  Truckit 247’s Operator’s Licence was therefore revoked on the basis that it had failed to demonstrate that it satisfied the requirement to be of the appropriate financial standing

The law is clear – the requirement to be of the appropriate financial standing is a prerequisite for obtaining, or retaining, any Operator’s Licence and availability of finance is a continuing obligation; the purpose being to ensure that the operator has sufficient financial resources available to maintain its vehicles in a fit and roadworthy condition, safeguard road safety and compete fairly with other operators, within the constraints of the regulatory regime.  All applicants for, and holders of, Operator’s Licences must therefore be able to demonstrate, to the satisfaction of the Traffic Commissioners, that they are of the appropriate financial standing at the application, variation, Public Inquiry or five-yearly review stage and on an on-going basis.  For some operators, this may mean the difference between obtaining, and retaining, an Operator’s Licence or not, or restrict the number of vehicles that can be operated.  It is therefore essential that operators fully understand the requirements and how they can demonstrate that they satisfy them.

The key test is whether the applicant for, or holder of, the Operator’s Licence has available capital and reserves of an amount equal to the sum specified.  With effect from 1 January 2012, the financial standing levels are as follows:

Standard National &   International Licences

First vehicle

£7,700 (previously £8,100)

Each subsequent vehicle

£4,200 (previously £4,500)

 Restricted Licences

First vehicle

£3,100 (previously £3,100)

Each subsequent vehicle

£1,700 (previously £1,700)

“Available” is defined as “capable of being used, at one’s disposal, within one’s reach, obtainable or easy to get”.  The key questions to be answered are therefore: “How much money can the operator find?” “How quickly?” “Where from?” 

IAA HANOVER 27.09.2010 041

What may be accepted as evidence of financial standing?
EC Regulation 1071/2009, which was implemented in the UK on 4 December 2011, initially allows three ways in which operators can satisfy the financial standing requirements:

  • Certified annual accounts comprising balance sheet, profit and loss accounts and notes on accounts;
  • Certified opening balance for new operators – a properly accredited person can provide a statement of assets and liabilities before they started trading;
  • Financial guarantee.

However, the UK has afforded greater flexibility to operators and the following table provides examples of the evidence
(which the Traffic Commissioners have, historically, taken into account) that may be taken into account for the purposes of demonstrating appropriate financial standing:

Cash in the Bank Perhaps,   unsurprisingly, one of the most reliable ways of demonstrating financial   standing is, and has historically been, cash held in a bank account over a   period of time.  Historically,   applicants/operators have been required to submit bank statements for a three   month period.
Opening Balance It is recognised that, if the applicant is a new business, they may   not be in a position to produce bank statements for a three month   period.  In such circumstances, an   opening balance showing access to the required sum will suffice; however, the   Operator’s Licence will be granted   subject to a finance condition.
Overdraft Facility

 

i.e. if there is a balance undrawn before the overdraft limit is   reached.  NB an offer of an overdraft facility will not suffice.
Invoice Finance Agreements These will only be accepted if accompanied by confirmation of the   available balances not drawn down averaged over a three month period.
Credit Card Account

 

NB where a credit card   account is the only source of evidence, the Traffic Commissioner is entitled   to question why there is no other evidence of banking facilities available.
Debts which are obtainable because they are due and likely to be easy to collect;
Assets  such as property,   plant and machinery, which can be readily sold without any adverse effect on   the ability of the operator to operate efficiently and profitably.
Latest Annual Accounts These will only be   accepted as a substitute for bank statements where they have been certified,   generally only for established and substantial companies with a turnover of   more than £5.6 million.

 JMW’s road transport specialists have unrivalled expertise guiding operators through the financial standing process (whether it be at the initial application, variation, Public Inquiry or five-yearly review stage) and providing innovative solutions to enable operators to demonstrate, to the satisfaction of the Traffic Commissioners, that they satisfy the requirement to be of the appropriate financial standing.

For pragmatic advice and assistance in relation to financial standing, or any other aspect of road transport law, contact Laura Hadzik, a solicitor specialising solely in road transport law at JMW Solicitors LLP, Manchester on 0161 828 1849  or email her at laura.hadzik@jmw.co.uk

 

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