Croner-i advises on financial standing during COVID-19

It’s hard enough maintaining a PSV O-Licence efficiently in a market governed by strict rules and legislation, yet operators have so much more to deal with on a daily basis. Croner-i Passenger Transport brings together all the information a road passenger transport operator needs to remain compliant.

Croner-i offers advice on maintaining an O-Licence in the UK, employment and driver issues and practical information for coach operations throughout Europe. In this month’s routeone column, Croner-i looks at the impacts of the financial standing requirement during the coronavirus COVID-19 pandemic.

Economic struggle, financial standing and obligations to the TCs

The consequences of coronavirus COVID-19 have hit the passenger road transport industry particularly hard. Realistically, it is likely to be several more months before private hire passenger transport – the football match away-day, the London theatre day trip, the Swiss Alps skiing tour – is back to what it was.

Whether the impact of a financial hit is terminal or survivable, it is important that operators continue to comply with their O-Licence undertakings. Failing to do so could be fatal to the chances of remaining in – or returning to – the industry.

Here, Croner-i looks at the obligations to the Traffic Commissioner (TC) regarding the financial standing requirement and the best course of action during financial struggles.

Explaining the financial standing requirement

Every operator is, at the time of applying for their O-Licence, required to supply evidence demonstrating the availability of sufficient funds to meet the financial standing threshold for the number of vehicles sought. It must do the same when completing the five-year O-Licence checklist declaration that requires a self-certified summary of the ways in which its financial standing obligation is met.

Croner-i financial standing
Traffic Commissioners are empowered to request evidence of financial standing at any time – including when they believe it is not being met

However, financial standing is not a five-yearly requirement, but a constant obligation that lasts for the duration of the O-Licence.

TCs are empowered to request evidence of financial standing at any time – and they are especially likely to do so if they receive information indicating that an operator may no longer be able to demonstrate access to the required level of funds.

That information ought, in fact, to come from the operator directly; it is a licence condition that operators must notify the Office of the TC of a material change to their ability to demonstrate financial standing within 28 days.

However, they do not need to write to the TC every time the balance falls below the required figure – which is why the usual method of assessment is to calculate the average balance available over a three-month period.

Coronavirus coronavirus COVID-19: Periods of grace

If the financial standing obligation is no longer satisfied, the regulations permit TCs to grant periods of grace to enable operators to demonstrate that they will in future be able to satisfy the necessary finance requirement.

So what can operators do in order to protect themselves from adverse findings by TCs when faced with a potential financial crisis of indeterminate duration?  The first and obvious answer is that they should not simply disregard this risk and proceed on the basis that they will cross that particular bridge if and when they reach it.

For their part, the TCs have been trying to help operators during the coronavirus COVID-19 crisis by providing guidance on various issues relevant to O-Licence holders. Under formal guidance issued to operators in the light of the pandemic, the Senior TC has directed that a satisfactory financial assessment within the previous 12 months may be a sufficient basis for granting a period of grace.

TCs give credit for timely, candid notifications by operators

This guidance also incorporates new EU Regulations laid down on 25 May, temporarily extending the maximum duration of a period of grace from six months to 12 months for any financial assessment carried out between 1 March and 30 September.

For any operator that has been granted a six-month period of grace between 1 March and 25 May, when the EU Regulation came into force, TCs have the power to increase the period of grace to up to 12 months.

Croner-i financial standing
Operators that are facing financial problems should not fear ‘reporting themselves’ to the TC; they will be given credit for prompt action

Operators facing the lethal threat of financial catastrophe may not feel that they can risk ‘reporting themselves’ to the TC, believing that in doing so they will be like turkeys voting for Christmas.

But TCs do give credit to operators for being candid, and sending a timely notification of financial difficulties supported by a credible proposal showing the ways in which the financial position can be recovered  – and the vehicles kept safe on the road in the meantime  – should be met by the granting of an appropriate period of grace.

Operators who know that they must notify the TC, but choose to hide the reality, run the risk that, if and when they are caught, the question will arise as to whether or not they can be trusted to comply in the future.

All changes in financial standing must be notified, says Croner-i

For operators who have to face the difficult decision to cease trading and enter into administration, receivership or liquidation, there is a separate O-Licence condition requiring that the TC should be notified of this as a major change in financial circumstances within 28 days.

Again, operators they conclude they have more pressing problems to worry about than notifying the TC may have cause to regret this failure if they wish to continue to work within the O-Licensing system, and their past catches up with them.

A summary of the above

The O-Licensing regime is not designed to punish operators who struggle in times of economic uncertainty. This is especially so considering the impact of coronavirus COVID-19: A global pandemic the like of which has not been experienced since the O-Licensing regime was brought into law decades ago.

Operators must remember their licence obligations, keep in mind that financial standing is a continuous requirement, and trust that the TCs are more than aware of the present challenges facing the industry.

Readers of routeone can take advantage of an exclusive offer in conjunction with Croner-i that will enable them to gain discounted access to all the information they need to stay compliant.

Croner-i is offering readers of routeone a 10% reduction on the purchase price of an annual package to access the Croner-i online, members-only portal. It holds all the above information in an easy-to-access and understandable style.

For full details, please click here.

In addition to the above article on financial standing, previous Croner-i columns in routeone have looked at coronavirus COVID-19 risk assessments, at employment questions relating to the coronavirus COVID-19 pandemic, at drivers’ hours on rail replacement services and advised on actions when moving out of lockdown.