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Principal Solicitor : Simon Newman
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FINANCIAL STANDING REVISITED
Financial standing is one of the most misunderstood aspects of operator licensing in my experience as a transport solicitor. I aim in this article to set out the basics and dispel a few of the myths out there surrounding the financial standing requirement.
Financial Standing: The Requirement
An operator licence holder is required by law to be of financial standing. To prove financial standing an operator must be able to demonstrate that they have constant and immediate access to a specified sum of money.
In the case of a standard operators licences, the specified sum is £8,100 for one vehicle and £4,500 for each additional vehicle. For a restricted operators licence the figures are £3,100 for the first vehicle and £1,700 for each additional vehicle.
It is incumbent upon an operator to prove that they are of financial standing. At the stage they apply for an operators licence and also when called to public inquiry are times when an operator is always called upon to show financial standing.
Acceptable Evidence of Financial Standing
The only safe, set-in-stone method for proving financial standing is three months of bank statements in the name of the operator showing, on average, the required sum of money available as a positive credit balance.
Bank accounts must be in the name of the Operator. It is no good a director sending in his personal savings account to prove financial standing for his limited company even if he is the sole director and 100% shareholder. For a limited company, only bank statements in the name of the limited company are acceptable. Ditto for an individual or a partnership. Bank statements should be in the name of the person who is the named operator.
An undrawn overdraft balance is another acceptable source of finance for the purposes of meeting financial standing. In some cases a factoring arrangement will also be taken into account.
Discretionary Methods of Proving Financial Standing
In a case where the operator is an individual who does not have the financial resources, but knows someone who does, there is a way to show financial standing using the money belonging to the third party.
For money belonging to a third party to be taken into account, the third party must sign a formal documents called a statutory declaration. The statutory declaration must include a clause saying that the third party will make money available to the operator as and when it is required to allow the operator to finance their operator licensing obligations. The third party may have to prove that they have the money they say they have, for example by them producing their own bank statements.
The traffic commissioner may, in his or her discretion, decide to accept the statutory declaration as counting towards the operator’s financial resources.
The statutory declaration method is not available to a limited company.
In some circumstances, a traffic commissioner might be persuaded to take into account physical assets, vehicles or stock for example, or intangible assets such as book debts. Traffic commissioners are generally reluctant to accept these but there are instances where they have been taken into account.
Financial Standing Must be Maintained
Many operators believe that they only have to be of financial standing when asked to demonstrate it. Operators attending public inquiry often believe that if they are able to raise the required finance at the day of the public inquiry then it doesn’t matter afterwards whether they continue to have access to that level of finance or not.
That is incorrect. The rules are that an operator must have continuous access to the required level of finance. The traffic commissioner will not agree that the operator is of financial standing unless they can prove that they are able to maintain that level of finance – not just cobble it together on the day of the inquiry.
If an operator finds themselves not able to maintain the required level of finance at any time then they must inform the traffic commissioner’s office. Failing to do so is a breach of undertaking and could amount to misconduct.
The lesson is that arrangements must be made so than an operator is always able to maintain the required level of finance.
Some operators believe that there is a period of grace and that when called upon to prove financial standing, they will be permitted 6 months to get the finance together.
This is a complete and dangerous misconception.
This myth has originated from some public inquiries where there is evidence of financial standing but the traffic commissioner is not completely satisfied that the required level will be maintained. In such cases the traffic commissioner will often ask the operator to prove financial standing again after a few months. Typically this will be 3 to 6 months after the public inquiry.
This is not the same as there being a period of grace. In reality it is just the opposite. It means that the operator must prove their financial standing not once, but twice.
This is the most important thing that operators must be aware of. If an operator is not able to prove that they have financial standing then the traffic commissioner must by law revoke the operators licence. There is no discretion about it.
Operators often talk about their financial problems as an excuse for not having the required level of finance. I’m often told how companies have gone out of business owing them money which has meant they’ve lost their financial reserves. Operators also often tell me how they can’t understand why they need to have these financial reserves when their vehicles are maintained under their lease agreement.
None of this matters. Financial standing is mandatory by law. The traffic commissioner has no choice in the matter. Once the traffic commissioner decides that you do not meet the financial standing requirement, the licence has to go. Even in the most deserving case, where there has been no regulatory breaches, the licence has to be revoked.
Financial standing is clearly a fundamentally important issue for vehicle operators. It can mean the difference between keeping and losing an operators licence. Because it is not always as straight forward as showing a balance sitting in a bank account, the matter can become quite complex. You are well advised to take advice from a good transport solicitor when called upon to show financial standing.
Simon Newman
21st June 2011
21st June 2011
