Administration and road hauliers: Keep on trucking?
Road hauliers are subject to a strict regulatory regime and are required to have an appropriate operator licence ("O licence") for all of their vehicles (section 2 Goods Vehicles (Licensing of Operators) Act 1995).
The O licences are conditional upon being able to demonstrate that the operating company is of sufficient "financial standing" to finance its operations and to maintain its fleet properly.
The amount of available funding that a haulier requires in order to demonstrate sufficient financial standing is reviewed annually but the current rates for this year are:
- Restricted licence – first authorised vehicle £3,100, each additional authorised vehicle £1,700.
- Standard national and international licences – first authorised vehicle £7,700, each additional authorised vehicle £4,200.
The Senior Traffic commissioner has given guidance as to what financial evidence will be acceptable when assessing financial standing.
In difficult economic times, even the strongest haulage company's reserves come under pressure and if the directors know, or ought to know, that the company can no longer meet its financial standing requirements, they are obliged to inform the Traffic commissioner. As had been noted by the Senior Traffic commissioner: "Another feature of the economic downturn has been an increased risk of insolvency and a consequent increase in public inquiries held featuring operators who seek to remain in business even though they no longer have the appropriate financial standing to hold an operator’s licence." Failure to inform the Traffic commissioner is likely to lead to regulatory action being taken against the haulier and/or any future licence application or renewal being referred to a public inquiry.
If this risk is not managed, it could make it next to impossible to sell a haulage business as a going concern, whether prior to or through a formal insolvency procedure.
If the haulier's financial difficulties are such that an urgent sale of the business is required, especially where this is accompanied by the possibility of administration or, less likely, liquidation, an urgent "regulation 31 application" should be made to the relevant Traffic commissioner for a direction that whoever takes over the haulier's business is to be treated as if they were the original licence holder (Regulation 31 The Goods Vehicles (Licensing of Operators) Regulations 1995). This is a temporary direction for a maximum of 12 months, which can be extended to 18 months in "special circumstances", so in the longer term the new owner needs to apply to transfer the vehicles that have been acquired onto its own licence. However, if a regulation 31 direction is obtained it should allow an administrator to trade a haulage business, with the assistance of an appropriately qualified manager, pending a sale.
The 2009 case of Brian Hill Waste Management Ltd v Secretary of State for Transport provides some guidance where a haulier enters administration. In that case, the administrator granted a weekly licence to a prospective buyer of a haulage business pending completion of a formal sale. However, the Traffic commissioner was not informed of the administrator's appointment, or even of the haulier's financial difficulties.
When the Traffic commissioner learnt of the administration, the administrator failed to respond to a request to make a regulation 31 application or surrender the vehicle discs. As a result of this, the prospective buyer's own application for an interim licence to use the vehicles was refused, resulting in a public inquiry at which the administrator was heavily criticised, his agreement to transfer the licence ruled unlawful and the licence held by the company in administration revoked. The prospective buyer was not able to deal with these issues and consequently it ended up going into liquidation itself within two months' of the inquiry's decision.
It should be noted that the fact that the haulier was in administration did not prevent the Traffic commissioner from opening an inquiry notwithstanding the usual "moratorium" on the commencement of legal proceedings against companies in administration.
The licensing system means that there are particular problems for insolvency practitioners who advise hauliers, particularly those which also operate passenger vehicles where regulation 31 does not apply. These may well influence the choice of procedure and the timing of any appointment, although the Traffic commissioners will normally assist insolvency practitioners who provide as much notice about a potential insolvency as possible, even though insolvency practitioners strictly have no right to represent a haulier until their formal appointment. Insolvency practitioners consulted by road haulage companies are advised to ensure at an early stage that they warn directors of the obligation to inform the Traffic commissioners if the company is no longer able to meet its financial standing requirements.
Insolvency practitioners should take early legal advice in connection with the particular issues that arise on the transfer of a haulage business and be familiar with, and in a position to complete and submit the Traffic commissioner's standard regulation 31 application form. In this respect, it should be borne in mind that the Traffic commissioner will look to the substance of transfer arrangements rather than the form. As such, if the effect of any arrangement is to give a new owner control of the vehicles and licences for the purposes of its business, it is highly likely that an urgent regulation 31 application will be required.