Don’t let your operator’s licence be the first casualty of a restructuring or administration

A cautionary tale…

Some years ago, a fleet operator in the construction sector underwent a group restructuring. Part of the plan involved the large goods vehicles and their drivers being transferred from one subsidiary in the group to another. Unfortunately, in the process, little thought was given to the company’s operator licensing position. Sometime later the licence came up to its five-year renewal point, at which time the company completed the necessary renewal forms with the central licensing office. It was at this point that they were informed by the licensing office that the legal entity currently operating the vehicles was not in fact the legal entity which the licence had been issued to, and that the matter would be referred to the Traffic Commissioner.

Even though the two companies were part of the same group, they were two distinct legal entities and an operator’s licence is non-transferrable. Consequently, the company discovered that it had been unwittingly operating unlawfully for an extended period. Operating without a licence is a strict liability criminal offence and so the entire fleet had to be taken off the road until the position could be urgently regularised, with legal support. Huge disruption was caused to the company’s business, customers and suppliers. Had a serious incident occurred during this period of unlawful operation the consequences would have been even more serious – not least because any policy of fleet insurance may well have been void.

Ongoing obligations

This true story is just one example of why it is so important for transport licensing considerations to be front and centre of any restructuring. For many companies, their operator’s licence will be perhaps their most critical business asset. It is for this reason that the Office of the Traffic Commissioner imposes strict and ongoing notification obligations on licence holders. This include a requirement to inform the regulator of any change of directorship, change in name or legal form of undertaking, change in establishment address, or change of transport manager within 28 days.

Similar obligations apply to companies that are struggling financially. Having the necessary level of “financial standing” available to keep a fleet in good repair is a continuing and mandatory obligation. The law is clear: a Traffic Commissioner “must” revoke a licence if the holder does not have the necessary level of funds available to it. It is a standard licence condition for an operator to notify the regulator in advance of any material change to the business, including any matter which could impact upon financial standing. This would include entering a CVA or Administration.

Administration

Even further care should be taken when a company holding an operator’s licence enters administration. If the newly appointed administrators decide to carry on the transport business of the company, either personally or by appointing managers, an urgent Regulation 31 application must be made to the Office of the Traffic Commissioner. The Senior Traffic Commissioner’s Statutory Document No. 5 warns of the consequences for administrators who fail to do so:

“if the administrator does nothing he should not be surprised if the company is called to a Public Inquiry on the grounds of loss of good repute, loss of financial standing and, possibly, unlawful operation.”

Conclusion

If your business operates any vehicles larger than a van, and you are contemplating either a restructuring, insolvency procedure or change in form of ownership or directorship, then it is essential to consider your licensing position. If dealt with at an early stage it is usually a simple matter of making the correct applications and notifications. It can be far more difficult to correct a non-compliant situation down the line.