Last reviewed 24 July 2023
The current financial requirements regarding standard national and international HGV PSV licences are £8000 for the first vehicle and £4500 for each additional vehicle. In relation to international LGV licences they are £1600 for the first light goods vehicle and £800 for each additional light goods vehicle. For restricted licences both HGV and PSV they are £3100 for the first vehicle and £1700 for each additional vehicle.
Being of appropriate financial standing requires the applicant to have sufficient available financial resources to ensure the establishment and proper administration of the business carried on, or proposed to be carried on, under the licence. The burden of proof is on the licence applicant and licence holder. Financial standing is not a one-off requirement to be met when applying for an O-licence and then from time to time (eg, when a continuation fee becomes payable), it is a continuing requirement that must be met throughout the life of the licence. The requirement cannot be satisfied by evidence which simply provides a “snapshot” of the financial position. Showing that on a particular day or during a particular month enough money was available is not sufficient. Instead, what is needed is evidence that there is consistently enough money available for the requirement to be satisfied. This can be shown by an average balance or through capital and reserves over the period of the licence.
The words “having available sufficient financial resources” and “has available to him capital and reserves” were considered by the Appeal Tribunal in the leading case on O-licence financial requirements of J J Adams in 1992. “Available” is defined as: “capable of being used, at one’s disposal, within one’s reach, obtainable or easy to get.” In other words, an operator only has available financial resources or capital and reserves if they have money in the bank that is capable of being used, or an available overdraft in the sense that there is a balance undrawn before the limit is reached, or debts that are obtainable because they are due and likely to be easy to collect, or there are assets from which money is easy to get in the sense that the assets are items that can be readily sold without any adverse effect on the ability of the business to generate money, or there is some other way in which to come up with money at fairly short notice, should it be needed.
The above should not be regarded as a comprehensive list. Whether or not an operator has available sufficient financial resources, or has available capital and reserves is a question of fact and degree that must be determined according to the circumstances of each individual case. On the one hand, in the case of an operator operating at or near to capacity, the outright sale of working vehicles is not a sensible way in which to raise money because it reduces the ability of the operator to operate efficiently and profitably, and it means that the operator’s overheads would have to be borne by a smaller number of vehicles. On the other hand, an operator who has, or may in the future, have surplus vehicles, may well be able to turn them into cash, if the second-hand market is good, without any adverse effect on the business.
Being assessed by Traffic Commissioners
Financial standing can be demonstrated in a variety of ways and the total figure in any given case can be made up by a portfolio of different sources. The willingness of Traffic Commissioners to accept a particular source of funds that are said to be available will depend upon the facts of each individual case, the nature of the source of funds and the amount relied upon from that source. The most reliable evidence of available funds will be cash in either bank accounts or reserves that have been held over a period; the least reliable is undrawn credit card balances. There are other sources of available funding that fall in between those extremes. For example, factoring arrangements (or invoice finance agreements) may appear on their face to be a suitable source of financial standing, but much will depend upon the detailed terms of the arrangement. The reasons why Traffic Commissioners are rightly sceptical of an operator’s reliance upon undrawn credit card balances are that the high interest rates charged on balances are not compatible or consistent with a viable business model and may place an unacceptable financial burden on the business. Further, because of those high interest rates, the higher the dependence on credit cards to show financial standing, the less likely it will be that an operator will, in fact, use the facilities if required to do so because of the high cost of that borrowing. So, whilst credit card facilities may be “available” to an operator, Traffic Commissioners may also assess whether they are truly “available” in the sense that they will in fact be used.
Theory v practice
It is not necessary to show that the requirement is met 365 days each year throughout the duration of the licence. What matters is the overall average and the speed with which the balance available returns to a level that satisfies or exceeds the amount required. The requirement to be of appropriate financial standing can only be met from assets that are available to pay bills as and when they fall due, hence the guidance that, for example, an account requiring more than 30 days’ notice should not be considered. With specific and limited exceptions assets, (using the term widely), put forward to meet the requirement to be of appropriate financial standing must be owned by and in the name of the operator. While it might appear possible, in theory, to put forward physical assets to meet the requirement to be of appropriate financial standing, the practical difficulties are such that it is unlikely to prove possible in practice.
When the applicant for an operator’s licence is a limited company, money in a bank account held in the name of one of the directors of that company is not “available” to meet the requirement to be of appropriate financial standing because it is not the company’s money. The same principle would apply in the case of a company holding an operator’s licence if financial standing was in issue.
When it can no longer be shown that the requirements are being met, Traffic Commissioners are allowed, but not required, to offer a period known as “a period of grace”, to rectify the position. Limited time to make written representations may be given before the Traffic Commissioner decides whether to allow time for rectification and for what period.
When considering whether to grant a period of grace, Traffic Commissioners will need some tangible evidence, beyond mere hope and aspiration, that granting a period of grace would be worthwhile, and that there are reasonable prospects for a good outcome. There is no point in a Traffic Commissioner granting a period of grace if the likely effect is just to put off the day when regulatory action would have to be taken.
Remedying financial standing
If it is wished to proceed with a Period of Grace application, it will be necessary to set out how the absence of financial standing will be remedied. Traffic Commissioners can allow a period of up to six months to demonstrate that the requirement will be met on a permanent basis. The starting point for any period of grace is three months, which may be extended to the maximum of six months should circumstances require it, taking account of the circumstances. On any application for a period of grace, a Traffic Commissioner will wish to be satisfied that there is no insolvency; that there are no outstanding maintenance or other issues, which might impact on road safety; and that it is not an attempted device to avoid responsibility for alleged failures in compliance. The Traffic Commissioner may rely on a recent financial check as evidence to support the granting of a period of grace. If, upon expiry of a period of grace, financial standing has still not been demonstrated then the O-licence will have to be revoked.
In a recent case, it was held that the regulations only allow an operator to be given one period of grace in relation to finance.