Richard Pelly of Pellys Transport and Regulatory Services offers guidance on the requirement to be of appropriate financial standing.
The requirement to be of appropriate financial standing is well known to operators but actually having sufficient funds available is easier said than done, and the continuous nature of the requirement can catch operators out. In this article, Richard Pelly offers a guide to compliance.
Form GV79 undertaking
In Section 16 (Undertakings and Declaration), on page 13 of Form GV79 (Application to a Traffic Commissioner for a Goods Vehicle Operator’s Licence), the final undertaking is the promise to “ensure that the Traffic Commissioner is notified within 28 days of … a change in the financial status of the licence holder”.
Not only are operators required to be of appropriate financial standing, they are also required (in reality trusted) to monitor their financial status and to notify the Traffic Commissioner should there be a material change in their financial position.
Understandably, operators will be reluctant voluntarily to draw attention to their own financial difficulties, knowing that to do so will very likely lead the Traffic Commissioner to ask questions they may be unable to answer satisfactorily. Furthermore, it is all too easy to self-certify one’s own financial health at a five-year operator’s licence renewal even when it is known that the information being certified is untrue.
Operators who fail to comply with the undertaking to notify of a material change, or who knowingly provide incorrect or incomplete information, do so at their peril, since these actions go to repute as well as to finance.
As the Upper Tribunal has warned, “[i]f it appears that the operator is able to snub the reasonable requirements of the traffic commissioner without adverse consequences then, clearly, trust will break down, the authority of the Traffic Commissioner will be diminished, the public inquiry system and fair competition between operators will be undermined, and others may also feel inclined (or compelled) to flout the regime”.
Operators may regard these observations as being somewhat academic, perhaps even trivial, when compared to the day-to-day challenges of running their vehicles in such straightened economic times, but these obligations are brought into sharp focus if they should find themselves called to Public Inquiry or required for some other reason to show evidence that they are of appropriate financial standing. When that happens, the finance and notification requirements may take on an entirely different complexion, but by that time it may be too late.
Period of grace
Traffic Commissioners are empowered to grant an operator who is found not to be of appropriate financial standing a period of grace of up to six months in order to demonstrate that the requirement will again be satisfied on a permanent basis. However, this power is a discretionary one and it is unrealistic to expect Traffic Commissioners to exercise a discretion in favour of an operator who has been less than candid.
For those with the time and inclination to look further, the Senior Traffic Commissioner’s Statutory Document No. 2 on Finance and the Upper Tribunal’s Traffic Commissioner Appeal decision in the case of NCF (Leicester) Ltd [T/2012/17] both provide a detailed analysis of the regulatory requirements and their application to individuals, partnerships and limited companies, and are themselves informed by Regulation (EC) 1071/2009.
Operators are required to have a minimum financial standing “to ensure their proper launching and administration”. The term “administration” means the organisation and running of the road transport operation and, in particular, the ability to ensure that vehicles can be operated safely due to the operator’s ability to afford to maintain them promptly and properly.
To comply with these requirements, operators need to know what their statutory financial requirement is and how it can be demonstrated, and they need to ensure that they keep an eye on their figures to ensure that all is as it should be.
Set with reference to the exchange rate between euro and sterling on 1 October 2012, the finance calculation for 2013 requires an operator to have £7200 available for the first vehicle authorised and £4000 for each subsequent vehicle authorised under a standard national or international licence.
Definition of “continuous”
Operators must keep in mind that the finance requirement is a continuous one and that “it cannot be satisfied by evidence which simply provides a ‘snapshot’ of the operator’s financial position. The requirement will not be satisfied by showing that on a particular day or during a particular month enough money was available. Instead, what is needed is evidence that the operator is consistently able to have enough money available for the requirement to be satisfied”.
This means that it is not sufficient to run an undertaking on a shoestring budget in the belief that if ever financial standing is required to be proved an operator can make a last-minute deposit in order to bring the sum available up to the level of the statutory requirement. Last-minute deposits will very likely be regarded as a snapshot in time, and the operator will be found to have been operating without being of appropriate financial standing (and very likely to be have been operating in breach of the undertaking to notify the traffic commissioner of that position).
When an operator is called to Public Inquiry, the standard request is for the provision of “all relevant up to date financial information which should include the following original documents:
the latest profit and loss account and balance sheet that have been prepared for the business
original bank statements for the last three months, and
details of any overdraft facility or other loan arrangement.”
It is worth noting that Traffic Commissioners will not accept cash as evidence of readily available finance and so, while cash may be king, it needs to be evidenced via a bank deposit — bringing cash to an Inquiry will not suffice. The other point that can catch operators out is that in order to count towards the financial standing calculation, the funds must usually be held by the licence holder.
Operators should also bear in mind that they are not required to have the full specified amount on every day in every year. The rationale for the requirement is that sums are readily available for the service, maintenance and repair of vehicles (including dealing with emergencies) and so inevitably funds will need to be spent in order to finance this work. As the Upper Tribunal makes clear, “what the Traffic Commissioner will want to consider is the speed with which the amount of money available recovers to a level at, or above, the amount needed to satisfy the requirement to be of appropriate financial standing”. With that in mind, operators should be aware that funds held in accounts that require more than 30 days’ notice before money can be withdrawn are unlikely to be accepted as funds that are “available” for the purpose of calculating the operator’s financial standing.
In the end, money does not grow on trees and a knowledge of the financial standing requirements will only take an operator so far if it lacks sufficient funds to enable it to comply. Having said that, operators risk their repute and their licences if they do not know what is required of them and if they do not deliver upon their undertakings, so it is worth knowing what the rules are and how they apply.
Last reviewed 19 March 2013