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Operator Licensing and Insolvency

22nd November, 2016

In this article Tim Culpin, Partner and Head of Transport at Aaron & Partners, takes a look at Operator Licensing and Insolvency.

Any business, be it a sole trader, partnership, LLP or other corporate entity, that wishes to operate commercial vehicles (good vehicles with a maximum permissible gross weight in excess of 3.5 tonnes or passenger carrying vehicles adapted to carry nine or more passengers) must hold a valid operator’s licence.  These licences are regulated by the Traffic Commissioners.

The pre-requisites for holding an operator’s licence are financial standing, good repute and professional competency.  The loss of any of these can result in the revocation of the license and an insolvency procedure can threaten both financial standing and good repute.  The holders of licences are obliged to notify the relevant Traffic Commissioner of any material changes within 28 days.

Financial standing requires the licence holder to be able to demonstrate continuous access to capital and reserves in the required sum.  Currently this is set at £6,650 for the first vehicle and £3,700 for each subsequent vehicle.  The basis of these figures is set by EC Regulations (€9,000 & €5,000) and tied to the official EC exchange rate as of the first working day in October each year with changes coming into effect on the following 1st January.  Given the poor exchange rate, these figures are likely to increase significantly from 1 January 2017.  Case law has built up such that, put simply, this requirement is satisfied by demonstrating access to cash in the bank or an unused overdraft facility – there are other options, but there is not scope in this article to discuss these.

Traffic Commissioners are well aware that financial difficulties do not arise overnight and they expect licence holders to notify them as soon as such difficulties arise.  They have a discretion to grant a six-month period of grace in which a licence holder can re-establish access to the requisite funds on a continuous basis, but once insolvency advice is obtained and that advice is to enter a formal insolvency procedure the relevant Traffic Commissioner should be notified immediately, particularly if the licence holder, partners or directors wish to continue operating commercial vehicles.

While the Traffic Commissioners recognise the rescue culture operated in the UK they are mindful of the impact of wrongful or fraudulent trading on good repute.  Any application for a new licence following an insolvency, particularly but not restricted to a prepack administration, will receive thorough scrutiny to ensure that conduct has been appropriate at all times and that any new funding is both properly available and not to the detriment of creditors.  Such applications are often considered at a public inquiry and in these circumstances, there can be a delay for up to 6 months in obtaining a grant.

An operator’s licence is unique to the legal entity to which it was issued and cannot be transferred.  While the licence remains technically valid until it is either revoked or surrendered, Traffic Commissioners take a very dim view of continued use once an insolvency procedure is in place.  Where there is an insolvency, an application can be made either by an insolvency practitioner or another party wishing to continue the business, for a continuation of the existing licence for a limited period, but these are not easily gained and few insolvency practitioners are prepared to give the undertakings and take on the responsibility of operating commercial vehicles.

Any insolvency practitioner advising the holders of operator’s licences should ensure that those they are advising obtain appropriate legal advice with respect to the implications on the operator’s licence and any future applications that might be made, at the earliest opportunity.  Experience shows that an early and timely notification to the relevant Traffic Commissioner will significantly assist in obtaining a new licence, possibly without public inquiry and/or the grant of an interim licence at an early point to facilitate a smooth transition from an insolvent business to a purchaser of that business.

Please note that the information and opinions expressed in this article are not necessarily comprehensive and do not purport to give professional advice. Specific advice concerning individual situations should be obtained from Tim Culpin.

Tim-CulpinTim Culpin

Partner & Head of Transport

Direct dial: 01244 405533

Email: [email protected]

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