Understanding insolvency with an operator’s licence
As mentioned above, this article will look into the effects of insolvency on haulage operator’s licence.
When do I need an operator’s licence?
An operator’s licence application must be made when your business uses goods vehicles which:
- Can carry in excess of 3.5 tonnes in weight when fully laden;
- The vehicle weighs in excess of 1.5 tonnes unladen.
There are also some exemptions where the vehicle is used to carry your own goods as opposed to a customer’s goods. When considering commencing business as a haulage company, you should factor in that the turnaround time for receiving an operators licence can be up to 10 weeks.
You must also meet the financial criteria to support your operator’s licence, which at the 2018 rates are £7,950 for the first vehicle and a further £4,400 for each additional vehicle. The financial standing must be met through funds readily available to the business i.e. money in the company bank account, not set aside to pay VAT, or within the authorised overdraft for the company. On making the application, a grace period of up to 6 months may be permitted by the transport commissioner.
What are the main causes of freight insolvency?
Through the cases we deal with, the biggest factors leading to haulage insolvency appear to be:
- Rising oil prices impacting on the cost of fuel;
- Brexit causing uncertainty on trade with the EU resulting in a reduction in cross border work;
- The requirement for a workplace pension scheme. Due to the long hours, drivers are often paid significantly higher than minimum. Therefore, higher contributions are required than other industries.
Due to the nature of the industry, many of the expenses need to be paid immediately, where customers will ask for credit terms on payments. As a result of this, we often find haulage companies who approach us with financial difficulties have large VAT arrears, with this being paid only once per quarter. When cash has become tight, we often find that cash is often paid for the more immediate expenses falling due rather than being set aside resulting in tax arrears.
Directors should be carefully that they are not accused of trading while insolvent, or worse, wrongful trading when it comes down to this scenario. They may also face director disqualification, if the insolvency service believes they have been trading at the expense of HM Revenue & Customs.
How does insolvency affect an operator’s licence?
The operator’s licence application will be made in the name of the limited company. Therefore, if the company enters administration or liquidation, you will no longer be able to rely on the licence. An administration can apply to continue to trade the business using the existing operators licence for a short time period. A liquidator will be required to surrender the licence within a month. However, if a company voluntary arrangement is put forward, it is possible to retain the existing licence.
This does not preclude the use of liquidation or administration procedures for haulage companies, particularly as a CVA requires acceptance from 75% of creditors. Operators licences are not transferable. However, if you are looking to buy a haulage business out of insolvency, you will need to have a licence in place. In certain circumstances, it’s possible to apply for an interim operators licence. This can be granted in the shorter period of within 21 days. It should be noted that an interim operators licence does not guarantee you will be granted a full operators licence.
When can an interim operators licence application be made?
An interim operators licence application can only be submitted once an application has been made for a full operators licence. The application can only be made where there are urgent grounds for the interim operators licence to be granted. In an insolvency scenario, the acceptable urgent reason may be to preserve jobs.
Based on previous matters, the transport commissioner will only grant an interim licence where there is early engagement from both the company and the insolvency practitioner. This is to satisfy that the new company, buying the business out of insolvency, meets the financial requirements for the final operators licence. If the transport commissioner is not engaged early in the process, they will reject the interim operators licence application. This has been known to take up to 6 months to carry out additional scrutiny due to the circumstances.
If you have a haulage or freight company which is facing financial difficulties, or looking to buy a haulage company out of insolvency, it is important to ensure you are dealing with an insolvency practitioner experienced in the industry. Our business rescue experts have dealt with numerous haulage matters over the years, trading through administration and pre-pack asset sales. Through early engagement, they can find the best solution for your business.