Part 1 – Where a Company Is Sold, Transferred, or Enters Administration
We are often asked whether an Operator’s Licence can be transferred when there are significant changes proposed as a result of a possible sale or a likely administration.
On occasion, we discover that an Operator has already tried to ‘transfer’ their licence without following the correct procedure. Our transport solicitor Laura Newton explores this topic and advises how to avoid the common pitfalls.
In answer to the question – Can I transfer my Operator’s Licence? The answer is predictably complicated.
When a transport business is being sold, or is going into administration, the licence activity will need to either move to the new business owners or transfer to the administrators. This requires “New Co” to either obtain authority (to ensure continuity of service) or potentially make a new licence application.
We have recently assisted Zero Degrees Logistics Ltd in obtaining Operators’ Licences in the Northwest and Northeastern Traffic Areas, in order to secure the assets of Martyn Barratt Transport, before the Nottingham based company sadly went into administration.
By approaching this correctly, we were able to ensure that there was a seamless transition of the transport activities without disruption to customers. The applicant was able to share the proposals transparently with the Traffic Commissioner so there would be no risk of reviewing the licence when the insolvency was published.
If your business is set to acquire the assets of another business where an Operator’s Licence is involved, it is vital to take legal advice to ensure there is a smooth transition, even where there is no insolvency.
What is the end goal?
The first step is to ascertain the required time frame, and to confirm exactly what the end goal is. If the entity is to remain the same, with just a change of directors and/ or shareholders, the process is very simple. A new licence application is not required, but the Traffic Commissioner must be updated about the changes, with the new directors making the relevant declarations. Even this simple transition can sometimes be complicated by privacy and confidentiality if the staff are not aware of the transfer (and / or the purchasers do not want the proposal to appear in the public domain).
More commonly, we act where a business is being transferred from one entity to another and will require a new licence application, or a variation of the existing licence for the purchasing company.
How long will it take?
The Traffic Commissioner’s target to process new Licence applications is 9 weeks, but this can vary greatly depending on how much further information is requested by the Traffic Commissioner. It is therefore important to include as much relevant information as possible at the first stage to avoid unnecessary delay, which could defeat the commercial viability of the proposed acquisition.
Where the new company requirements mirror the existing licence authority i.e. taking over the same number of vehicles and using the same Operating Centre, the new application can be simplified under the Schedule 4 processes. This means that instead of having to place an advert in the local newspaper, the new applicant can apply for a transfer of the Operating Centre.
This shortened process can also assist with any successful application for an interim licence without having to wait for the 21-day objection period. A Schedule 4 can be adopted even where the buyer already has an Operator’s Licence but wishes to add an Operating Centre and increase its fleet.
Financial Standing
Financial standing can be a separate issue, especially where the applicant does not hold large funds in the business or has no capital in the bank. If there is a large fleet in the acquired business, then a higher level of financial standing is needed.
By way of example, a Standard Goods Vehicle Licences require an Operator to demonstrate that it has at its disposal, at all times, capital and reserves of £8,000 for the first heavy goods vehicle, and £4,500 for each additional heavy goods vehicle. The figures vary for other Licences and the current information can be found here.
Issues with financial standing can usually be resolved with other methods of evidencing financial standing, or undertakings, but working this out prior to the application submission can save weeks of correspondence, which will delay the application being finalised.
It is always important to be transparent with the Traffic Commissioner about the circumstances of the new application. If there is any insolvency, you may be required to produce evidence from an administrator to satisfy the Traffic Commissioner that the application is bona fide and not a front. This is important to the Traffic Commissioner, who has to determine whether the applicant is reputationally sound (or of “Good repute”).
You are also required to declare where any assets have been purchased from an insolvent company, and it is advisable to make this declaration even where the purchase is planned rather than completed. In cases of insolvency, the Traffic Commissioner will always be keen to ensure that the new operation is not simply a phoenix to allow a business to cut its losses, (usually debts to HMRC), and re start without that financial burden. Although it is possible for the same directors to apply for a Licence with a new company, they must be able to demonstrate that there is no unfair advantage.
Compliance Structures
The Traffic Commissioner will be interested in whether the new company and management team will be capable of maintaining compliance, especially where they have no previous experience. It may be that existing practices will continue with the transfer of Transport Managers, but it is likely that the Traffic Commissioner will require Directors to undertake Operator training and it may be wise to engage a consultant to audit compliance to benchmark how well existing processes are working. If there is time, this is an important part of the due diligence to ensure that the buyer is not inheriting a ticking time bomb, or a business which has already been in trouble with the Traffic Commissioner and DVSA. If time does not allow, it should be the first job once the licence is granted.
Licence Granted, Now What?
Timing and preparation are very important, as there must be a clear distinction between each entity, in respect of where one stops operating and the other picks up. There may be some disruption, but clever planning can ensure that there is business continuity.
Where a new licence is granted, from that point on the new licence holder must:
- Demonstrate financial standing with funds in its own name.
- Ensure that the new company bears the financial obligation of running the vehicles.
- Employ drivers and bear the cost of the driver wages.
- Directly engage the Transport Manager.
- Have full control of the maintenance and compliance.
- Have full control of maintaining a compliant drivers’ hours regime.
- Invoice customers in its own name and receive those funds.
The Traffic Commissioner will expect the new licence holder to conduct a first use inspection on vehicles, and it must ensure that vehicle tachograph heads are ‘locked in’ before the vehicles are used. If vehicles are sold, the tax will not transfer, so this will need to be arranged before vehicles return to use.
The new licence holder must ensure that vehicles have a valid MOT and fully calibrated tachographs. They must ensure that drivers have the correct authority to drive and have received proper training which is evidenced and certified.
If these matters cannot be evidenced in documentation, it may not be sufficient to rely upon verbal assertions.
As can be seen, there are many practical considerations to plan into the transfer of vehicles and drivers. There are also a number of checks which must be made in the due diligence to prevent future problems.
If you are considering applying for an Operator’s Licence or transferring your transport business from one entity to another, call our team today who have the expertise to give the best chance of a simple and speedy application.
Similarly, if you need to take over a business from someone who is incapacitated or has died, there are separate legal considerations which we will cover in next weeks bulletin.
