HGV's Paragraph 6 of Schedule 3 of the Goods Vehicle (Licensing of Operators) Act 1985 ('the Act') requires all Applicants or Holders of a Standard Licence (National or International) to have sufficient financial resources available to ensure the establishment and proper administration of the road transport undertaking that is or is proposed to be carried on. Simply, there have to be sufficient funds available to the operator to ensure that he/she can properly finance the operation including properly maintaining vehicles.
The level of financial standing is set by legislation and the total sum is based on the number of vehicles multiplied by the current statutory figure. The figures below are current and came into effect on 1st January 2012.
An operator requiring a Standard National Operators Licence for 5 vehicles would require to show a Financial Standing of:-
1 x £7,700 + 4 x £4,200
Proof of Financial Standing
There are a number of ways that Financial Standing can be proved and applicants and Holders alike are recommended to read and take note of the 'Financial Evidence and Operator Licensing Guidance, both of which can be downloaded below:-
VOSA have issued a Practice Direction on what may be acceptable as Proof of Financial Standing for which the below list is taken but it should not be considered exhaustive and the operator needs to make his/her own further enquiries:-
- All financial documents must be in the same name(s) as the applicant or licence holder. In the case of a Limited Company the funds must be held within the company. In the case of partnerships or sole traders the finance may at the Traffic Commissioner's discretion unusually be in different names, but must be supported by a statutory declaration (Example at Appendix 1) signed as at the date of the application by the person(s) holding the money showing that it is available to other person(s).
- In the case of any bank or building society accounts, original statements must be supplied for the last 3 months. The average balance over this period will be calculated, and added to any overdraft or credit facility demonstrated by a formal written commitment by the bank, etc.
- If more than one account is offered, the amount available to demonstrate financial standing is the sum of the amounts calculated as above.
- If it is a new business and thus does not have statements for 3 months, an opening balance meeting the requirement can be accepted, but will be reviewed 12 months after the grant of the licence.
- Invoice Finance agreements are acceptable, but only if accompanied by a signed agreement from the finance firm on the lines of Appendix 2 in which the finance provider agrees to retain the appropriate amount of money required to meet the definition of financial standing.
- Credit card accounts (in the same name as the application or licence holder) must be supported by evidence, similar to bank statements, to show that over the same three-month period the funds available meet the criteria.
- Cash is rarely appropriate since it cannot be demonstrated to 'belong' to the applicant, but may occasionally be accepted for a limited number of applicants who claim to deal exclusively in cash.
- The latest audited annual accounts (to a date not more than 18 months prior to the date of application/licence check) can be used as a substitute for bank etc statements only for established and substantial limited companies/plcs. For smaller businesses, annual accounts may be relevant as additional evidence in borderline cases; they will carry greater weight if audited and recent.
The following are not acceptable as evidence:
- Bank letters (other than formal overdrafts).
- Children's accounts.
- Physical assets (such as livestock, buildings or vehicles).
- Shares, Bonds, PEPs/ISAs, Savings Certificates, Insurance Policies - unless accompanied by a letter from an accountant/financial advisor certifying the current encashment values (except for shares quoted in the daily press which Traffic Area Office staff can ascertain), and the notice required to cash them, which must be no more than one month. It is noted that banks generally accept no more than 75% of the quoted worth of stocks and shares.
- Guarantees or Owner-Driver contracts with specific firms will be considered on their merits.
- The financial requirement is not reduced in the case of contract or lease hire vehicles whose maintenance is included in the hire charge, since there are often substantial penalty clauses within hire agreements which would have to be met if, for instance, the operator wanted to return the vehicles early upon the loss of a contract. The financial requirement is primarily for the purpose of working capital.
Operators will be asked at the five-yearly administrative renewal of their licence to demonstrate that they continue to meet the requirement to be of appropriate financial standing.
Maintaining Financial Standing
Maintaining the level of Financial Standing appropriate for the number of authorised vehicles is a continuing obligation and the onus is on the operator to do so. Not only must he do so, but the correct sums must be capable of being demonstrated and be readily available. Failure to do so could lead to revocation of the licence.
The following non-exhaustive points have been held by the Transport Tribunal as being applicable to Financial Standing:-
- The commissioner must revoke if 'it appears to him' that the licence holder is no longer of good repute or of appropriate financial standing or professionally competent.
- Burden of proof is on applicant for a licence
- Requirement of financial standing and position of financial assessor explained
- Revocation for lack of financial standing is mandatory - proportionality does not arise
- Restricted licence - unpaid fines of director not a relevant activity to be taken into account in considering financial resources
- Revocation may be made for lack of financial standing even if earlier revocation for loss of repute has been stayed pending appeal
- It is not acceptable if monies are in the wrong bank account
Sources of Finance
As set out above, Financial Standing may be proved in a number of ways such as asset based lending, factoring and invoice discounting. Operators should carefully consider the most appropriate way to finance their businesses and take good independent financial advice from a reputable firm of advisors.
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