Last reviewed 19 November 2020

The consequences of Covid-19 have hit the passenger road transport industry particularly hard and, realistically, it is likely to be several more months before private hire passenger transport — the football match away-day, the London theatre day-trip, the Swiss Alps skiing tour — is back to what it was. Whether the impact of a financial hit is terminal or survivable, it is important that operators continue to comply with their O-licence undertakings: failing to do so could be fatal to the chances of remaining in — or returning to — the industry. Pellys Transport and Regulatory Law looks at the obligations to the Traffic Commissioner regarding the financial standing requirement and the best course of action during financial struggles.

This feature is currently being reviewed in light of the new financial standing levels announced for 2021.

The financial standing requirement

Every operator is, at the time of applying for their O-licence, required to supply evidence demonstrating the availability of sufficient funds to meet the financial standing threshold for the number of vehicles sought. They have to do the same when completing the five-year O-licence checklist declaration that requires a self-certified summary of the ways in which its financial standing obligation is met, with reference to the number of vehicles authorised on the licence (and not the number of vehicles in possession).

Full details of the financial standing obligation and guidance on the ways in which Traffic Commissioners assess whether or not the obligation is met in individual case is set out in the Senior Traffic Commissioner’s Guidance Document No. 2 — Finance.

However, financial standing is not a five-yearly requirement, but a constant obligation that lasts for the duration of the O-licence. Traffic Commissioners are empowered to request evidence of financial standing at any time — and are especially likely to do so if they receive information indicating that an operator may no longer be able to demonstrate access to the required level of funds. That information ought, in fact, to come from the operator directly; it is a licence condition that operators must notify the Office of the Traffic Commissioner of a material change to their ability to demonstrate financial standing within 28 days. However, they do not need to write to the Traffic Commissioner every time the balance falls below the required figure — which is why the usual method of assessment is to calculate the average balance available over a three-month period.

Covid-19 — periods of grace

If the financial standing obligation is no longer satisfied, the regulations permit Traffic Commissioners to grant periods of grace to enable operators to demonstrate that they will in the future be able to satisfy the necessary finance requirement.

So what can operators do in order to protect themselves from adverse findings by Traffic Commissioners when faced with a potential financial crisis of indeterminate duration? The first and obvious answer is that operators should not simply disregard this risk and proceed on the basis that they will cross that particular bridge if and when they reach it.

For their part, the Traffic Commissioners have been trying to help operators during the Covid-19 crisis by providing guidance on various issues relevant to O-licence holders. Under formal guidance issued to operators in the light of the Covid-19 pandemic, the Senior Traffic Commissioner has directed that a satisfactory financial assessment within the previous 12 months may be a sufficient basis for granting a period of grace. This guidance also incorporates new EU regulations laid down on 25 May 2020, temporarily extending the maximum duration of a period of grace from 6 months to 12 months for any financial assessment carried out between 1 March 2020 and 30 September 2020. For any operator that has been granted a 6-month period of grace between 1 March 2020 and 25 May 2020 when the EU regulation came into force, Traffic Commissioners have the power to increase the period of grace to up to 12 months.

Operators facing the lethal threat of financial catastrophe may not feel that they can risk “reporting themselves” to the Traffic Commissioners, believing that in doing so they will be like turkeys voting for Christmas. But Traffic Commissioners do give credit to operators for being candid, and sending a timely notification of financial difficulties supported by a credible proposal showing the ways in which the financial position can be recovered — and the vehicles kept safe on the road in the meantime — should be met by the granting of an appropriate period of grace. Operators who know that they must notify but choose to hide the reality run the risk that, if and when they are caught, the question will arise as to whether or not they can be trusted to comply in the future.

Changes in financial circumstances

For operators who have to face the difficult decision to cease trading and enter into administration, receivership or liquidation, there is a separate licence condition requiring that the Traffic Commissioner should be notified of this as a major change in financial circumstances within 28 days. Again, operators who conclude that they have more pressing problems to worry about than notifying the Traffic Commissioner may have cause to regret this failure if they wish to continue to work within the O-licensing system, and their past catches up with them.

Summary

The licensing regime is not designed to punish operators who struggle in times of economic uncertainty — this is especially so, considering the impact of Covid-19; a global pandemic, the like of which has not been experienced since the O-licensing regime was brought into law decades ago.

Operators must remember their licence obligations, keep in mind that financial standing is a continuous requirement, and trust that the Traffic Commissioners are more than aware of the present challenges facing the industry.