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Covid-19 – Economic Struggle, Financial Standing & Business Closure – Obligations to the Traffic Commissioner

2020 has been a year like no other, and the longer-term impacts of the Covid-19 crisis that have hit the world so hard are likely to be felt for many years to come.  At the time of writing, uncertainty still hangs like a dark cloud over the UK and especially over large parts of the road transport industry.  Even though many lockdown measures are now being lifted in stages, the received wisdom is that it will be months before life returns to something resembling ‘pre-Covid-19′ normality’.

With the country in ‘lockdown’ for week upon week and schools closed, the passenger road transport industry has been hit as hard as any – 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.  Many fear that the ‘new normal’ will not be survivable.

A bleak yet inevitable consequence of this is that there will, very unfortunately, be operators whose businesses have not been able to survive, and many others who have been hit so hard that whilst they struggle on, they are – at least temporarily – no longer able to demonstrate that they meet the O Licensing financial standing requirement.

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.

The Financial Standing Requirement

Every operator will, at the time of applying for its O Licence, have been required to supply evidence demonstrating the availability of sufficient funds to meet the financial standing threshold for the number of vehicles sought, and will have had to do the same when completing the five year O Licence checklist declaration that requires a self-certified summary of the way(s) in which the operator states that it 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 cases is set out in the Señor Traffic Commissioner’s Guidance Document No. 2 – Finance which operators are assumed to know.

Financial standing is not a 5-yearly requirement, but a constant obligation that lasts for the duration that an O Licence is in existence.  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 many 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 its ability to demonstrate financial standing within 28 days.

In business, there are ebbs and flows: there will invariably be less in the bank account the day after employee pay-day than the day before.  Operators are not expected to be writing to the Traffic Commissioner every time the balance falls below the required figure – which is why where finance is assessed based on the availability of money in the bank, the usual method of assessment is to calculate the average balance available over a three-month period (and in that way avoid relying upon a snapshot in time which may be misleading).

Covid-19 – Periods of Grace

Operators will know that for the holders of standard national and standard international O Licences, the core fundamentals are to be of good repute, professionally competent, to have the necessary financial standing and to have a stable and effective establishment.  If the financial standing obligation is no longer satisfied the regulations (Regulation (EC) 1071/2009, se in particular Article 13) permit Traffic Commissioners to grant periods of grace to enable operators to demonstrate that they will in 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 Commissioner(s), 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 with a request for a period of grace 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 chose to hide the reality and not to report as they are required to do run the risk that their decision not to be candid will weigh in the balance if (and when?) they are caught in relation to their repute, and the question of 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 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 as they know they myst may have cause to regret their failure to notify 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 that struggle in times of economic uncertainty – this is especially so, when one considers the impact of Cobid-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.

If you need any advice or help with regard to this matter, or any other that your business is facing at the moment please contact us on 01279 818280 or click here to email.  We are here to help.

(C) Richard Pelly – first appeared in Croner-i Passenger Transport, July 2020.