The Office of the Traffic Commissioner has extensive guidance available on the topic of finances, something that most operators will have concerns about at one time or another. As an operator, if you’ve ever been called to a hearing such as a public inquiry or a preliminary hearing then you’ll be aware that you have to show financial standing in advance of that hearing. It is also requested as part of the operator’s licence application process and can also be asked for by the traffic commissioners for various other reasons. The main thing to remember is that financial standing is a continuing requirement when you hold a licence, not just a one-off for your application or public inquiry.
Running up the bill
Operators often question why the traffic commissioner is so interested in their finances. After all, it can be an intrusive and time-consuming process to provide bank statements and financial evidence if you are not a large operator with audited annual accounts. If your vehicles are safe and roadworthy, why do they need to see the inner workings of your business? The answer lies in the statutory purpose for the requirement of having available finance. This requirement is that the holder of an operator’s licence has the financial resources available to ensure that its vehicles are safe to use on the road, and other road users (plus passengers if PSV) are not put at risk. The intended result is that it can compete equally with other operators on the level playing field of the regulatory regime. The Upper Tribunal considered the requirement in 2012/017 NCF (Leicester) Ltd and made it clear that there was a “strong public policy argument” in favour of a standardised approach to assessing finance, and the gatekeeper function of the traffic commissioner is supported by this requirement.
The main reason for the finance requirement is that it provides the traffic commissioner with a useful snapshot of how your business operates. The minimum amounts are intended to reflect how much is reasonably needed for the proper maintenance of the vehicles the operator has authorisation for. It would be unfair if some operators dedicated huge expense to the proper and high standard maintenance of their vehicles whilst others scrimped at expense of safety and pursuit of profit. It is a hard balance to maintain for any operator, but the financial standing requirement is there, in theory at least, to ensure that corners are not cut in the name of maximising profit over safety. Anyone in the industry will be able to name someone who does not follow this principle, but the rule is there to drive up standards and prevent a ‘race to the bottom’ by those not fit to be on the public roads.
Making it tally
At the point of making a new application, an applicant need only show that the required finance is available on a 28-day average. However, for an existing licence holder (whether called to a hearing or at the point of renewing the licence) this extends to a three-month average balance. The Upper Tribunal has held that the requirement cannot be satisfied by evidence which simply provides a ‘snapshot’ of the operator’s financial position i.e. by showing that on one day, or during a chosen month, enough money was available. Instead, what is necessary is evidence that the operator is consistently able to have enough money available. It is worth bearing in mind that the Senior Traffic Commissioner’s Statutory Guidance does state that real assets such as property, plant and machinery can be taken into account “if their disposal would not reduce the ability of the operator to operate efficiently and profitably” and so this can be a source of fallback where an operator is in a tight spot. This may mean examining the impact on an operator’s overheads. Where an operator proposes to rely on this type of asset it may be necessary to have independent evidence of value and the market to answer. It is for the operator to satisfy the traffic commissioner that the assets are owned by the entity – and in the case of vehicles their resale value can only be relied upon where there is a corresponding reduction in the number of vehicles authorised on the licence to avoid a double benefit.
What many operators also fail to appreciate is that financial resources need to be immediately available – this means if you need to ask someone else to transfer money then it doesn’t count. Indeed, even an account requiring a 30-day notice of withdrawal is not ‘available’ enough for the purposes of the traffic commissioner. Not only that, but the starting point is that all financial documents should be in exactly the same name as the licence holder (or applicant). There can be exceptions for partnerships and other entities, and these situations are covered in detail in the statutory documents. However the rule of thumb is that if the entity name does not match the licence holder name in every way then the evidence will not be accepted. In a public inquiry situation is important to triple check that each piece of evidence corresponds exactly with the licence holder because the advent of digital banking means that ‘statements’ as they were traditionally supplied no longer really exist. Often downloaded transaction statements have entity names that have been shortened or cut off. The traffic commissioner can and will refuse to accept statements where the entity name is not clear – to the point that the word ‘limited’ being missing will lead to the rejection of the evidence.
A small tip
If on considering the finances available to them an operator discovers they are not meeting the mandatory requirement then it is important to seek assistance straight away, as a period of grace can be granted by the traffic commissioner to allow the operator time to put their affairs in order. When a period of grace is granted to an operator, they have the burden of ensuring that they demonstrate the requirement is met before the expiry of the period of grace. The Senior Traffic Commissioner’s guidance states that “an operator should therefore actively manage any dates and request an extension, when appropriate, whilst remembering that the grant and any extension is always at the discretion of the traffic commissioner”. If a period of grace expires without the requirement being met then the traffic commissioner is then entitled to simply revoke the operator’s licence.
As an alternative to a period of grace, operators might wish to consider whether supplementary sources of finance might be secured or ask the traffic commissioner to accept a voluntary reduction in authority to a number that can be supported by their available finance. If they wish to proceed with a period of grace, the operator will have to explain how the lack of financial standing will be resolved, and this is where the advice of a specialist transport solicitor is often needed. It’s clear from the above that the financial standing requirement can be a source of confusion that could land the unwary operator in a public inquiry or even revocation situation. Backhouse Jones can provide expert guidance on everything relating to your operator’s licence from application issues to full support and representation at a public inquiry. For more information on Backhouse Jones’ team of expert road transport solicitors click here, call 01254 828 300, or email firstname.lastname@example.org.