Last reviewed 6 February 2018

The Traffic Commissioners recently (January 2018) issued a reminder to operators on how to manage sudden changes to business circumstances. Chris Powell of Smith Bowyer Clarke, Road Transport Lawyers gives an outline of the law on legal entities and operators’ licences and considers different ways in which a change of entity or a material change in circumstances can place an operator’s licence at risk.

Introduction

First and foremost, it is important for operators to note that goods vehicle operator licences are non-transferrable. Once a licence is issued by the Office of the Traffic Commissioner to a particular legal entity (eg to a limited company, partnership or sole trader), that legal entity cannot then transfer the licence to any other legal entity. Serious difficulties can arise when a legal entity changes, or when an entity fails to notify the Traffic Commissioner of a material change. Changes of entity are frequently the subject matter of Traffic Commissioners’ public enquiries and, if handled improperly, can even lead to criminal prosecutions.

Legal entities and operator licences

Section 2 of the Goods Vehicles (Licensing of Operators) Act 1995 makes it a criminal offence to use a goods vehicle on a road for the carriage of goods:

  • for hire or reward

  • or in connection with any trade or business, except under an operator’s licence.

It is the legal entity that “uses” a goods vehicle that must hold an operator’s licence.

Most operators’ licences are held either by:

  • limited companies

  • partnerships

  • sole traders.

These are distinct legal entities which operate in very different ways.

Limited companies

A limited company has a legal personality in itself, as distinct from its shareholders and directors. A limited company can hold an operator’s licence in its own name. Shareholders and directors may come and go, but the licence remains with the limited company.

Partnerships

A partnership is created by a legally binding agreement between two or more legal persons to work together. Unless specifically provided for in a written partnership agreement, when a new partner joins the business, or an existing partner leaves the business, the original partnership comes to an end. In those circumstances, any operator’s licence held by the original partnership cannot be transferred to the new partnership. The new partnership would need to apply for a licence in its own name.

Sole traders

A sole trader is an individual trading on his or her own account. An operator’s licence granted to a sole trader cannot be transferred to any other legal entity. It is not uncommon for a sole trader to use a trading name, however, a trading name is not a legal entity in the eyes of the law.

Scenarios

The following three scenarios each consider different ways in which a change of entity or a material change in circumstances can place an operator’s licence at risk.

These scenarios are hypothetical, and do not relate to the circumstances of any individual operator, and should not be considered legal advice.

A sole trader converting to a limited company

Scenario:

A sole trader applies for and is issued with an operator’s licence. The business steadily grows over the years, to the point at which the business is advised by its accountant to convert into a limited company. A limited company is incorporated for this purpose, which takes over the operation of the vehicles, receives payment from customers, contracts with third parties, and takes on the responsibility of maintaining the vehicles and employing the drivers.

The issue:

While the work carried out by the business may be the same, the legal entity has changed. The operator’s licence was granted to the sole trader, and not to the limited company. In the above scenario, the limited company will therefore be operating without a licence — a criminal offence. The Upper Tribunal Administrative Appeals Chamber addressed this type of scenario in the case of 2012/008 Brian Richards t/a B Richards, confirming that:

In the eyes of the law, a sole trader and a limited company are quite different legal ‘people’ or legal entities. It is the legal entity which operates the vehicles which must hold an operator’s licence.

An alternative approach:

In the above scenario, the limited company could have applied for an operator’s licence in its own name and ensured that one was in place prior to using the vehicles. The operator is under a legal duty to notify the Traffic Commissioner of the proposed change in the legal entity of the business.

Death of a partner

Scenario:

A haulage business is operated as a two-person partnership. The partnership holds an operator’s licence. One of the partners unexpectedly dies, and the business is continued by the surviving partner.

The issue:

In the absence of any special provision in the partnership deed, the death of one of the partners has the effect of dissolving the legal entity that was the partnership. As the operator’s licence was held by that legal entity, it follows that the operator’s licence is also terminated. The surviving partner who continues to operate vehicles will now be doing so without an operator’s licence.

An alternative approach:

On the death of the partner, the surviving partner could have informed the Office of the Traffic Commissioner immediately and made an application under Regulation 31 of the Goods Vehicles (Licensing of Operators) Regulations 1995. Regulation 31 gives the Traffic Commissioner the discretion to direct that:

A person carrying on the trade or business of the actual holder of the licence is to be treated … as if he were the holder thereof for such purpose and to such extent as is specified in the direction for a period not exceeding —

  • if it appears to the traffic commissioner that there are special circumstances, 18 months

  • in any other case, 12 months.

This approach may have allowed the surviving partner the time to apply for a new operator’s licence under a different legal entity (eg in their own name as a sole trader, or with another individual under a new partnership).

Company insolvency

Scenario:

A limited company holds an operator’s licence but develops severe financial difficulties and becomes insolvent. A Company Voluntary Arrangement (CVA) is entered into, allowing the company time to reach an agreement with its creditors. The Traffic Commissioner is not informed of these developments.

The issue:

As the holder of an operator’s licence, the company has a legal duty to notify the Office of the Traffic Commissioner of any material change in the financial status of the licence holder. By not doing so, the company has failed in its duties as an operator and deprived the Office of the Traffic Commissioner of the opportunity to make further enquiries. The good repute of the operator may be called into question by the Traffic Commissioner as a result.

An alternative approach:

The company is under a legal duty to keep the Office of the Traffic Commissioner informed of any material change in its financial position. This requirement would also apply in other similar circumstances (eg in the event that the company entered administration).

Conclusion

Operators and transport managers should be alive to the strict rules on operator licensing and legal entities. Legal entities which operate goods vehicles without doing so under an operator’s licence held in their own name could be committing a criminal offence. Similarly, operators who fail to keep the Traffic Commissioner informed of material changes to the financial circumstances of their business may be in breach of their legal duties as an operator and may also be committing a criminal offence.

This article is intended as a description of the law in this area. It is not a legal advice, and should not be considered as such.