Neutral Citation Number: [2013] UKUT 0424 (AAC)
                                                     Appeal No: T/2013/32

IN THE UPPER TRIBUNAL		
ADMINISTRATIVE APPEALS CHAMBER
(TRAFFIC COMMISSIONER APPEALS)

ON APPEAL FROM THE DECISION OF NICK JONES, 
TRAFFIC COMMISSIONER for the WEST MIDLAND TRAFFIC AREA, 
DATED 10 APRIL 3013

Before:
Judge Mark Hinchliffe, Deputy Chamber President (HESC); Judge of the Upper Tribunal.
John Robinson, Member of the Upper Tribunal.
Michael Farmer, Member of the Upper Tribunal.

Appellant:
ANN GILLIAN ROWBOTHAM t/a ANN’S EXECUTIVE COACHES

Attendance:
For the Appellant: 	No attendance and no representation

Appeal heard at: 	Field House, Breams Buildings, London
Date of hearing: 	6 August 2013
Date of decision: 	28 August 2013

DECISIONS OF THE UPPER TRIBUNAL:

IT IS HEREBY ORDERED that the appeal be allowed. The appellant has not lost her repute. However, the appellant has failed to demonstrate the requisite financial standing, so the refusal of her application for an operator’s licence must stand.

Subject matter:	
Individual Voluntary Arrangement (IVA). Impact upon financial standing and repute.

Cases referred to:
1992/D41 J.J. Adam (Haulage)
Pemberton Transport Ltd [2010] UKUT 471 (AAC)

REASONS FOR DECISIONS:

1)	This was an appeal from the decision of the Traffic Commissioner for the West Midland Traffic Area made on 10 April 2013 when he refused to grant an application by Mrs Ann Gillian Rowbotham for a standard national PSV operator’s licence authorising 4 vehicles.

2)	The factual background to this appeal appears from the documents, the transcript and the Traffic Commissioner’s decision, and is as follows:
(i)	The Appellant had been in partnership with her daughter, Dawn Ann Rowbotham, trading as Ann’s Executive Coaches, and the partnership held a standard national PSV operator’s licence authorising the use of 13 vehicles.
(ii)	On 11/1/2012 the Traffic Commissioner’s office received an application from Ann Gillian Rowbotham, trading as Ann’s Coaches for a new standard national operator’s licence. Originally, she sought authorisation for 8 vehicles, but this was subsequently amended to 4 vehicles. In a letter dated 20/1/2012 Mrs Rowbotham said that she wished to surrender her current operator’s licence “upon the granting of a new entity licence application currently being applied for”.
(iii)	On 21/2/2012 Mrs Rowbotham wrote to the Office of the Traffic Commissioner to advise that, as of that date, she had entered into an Individual Voluntary Arrangement (IVA) with her creditors. The IVA had been approved by Worcester County Court.
(iv)	A Mr Bowden, Licensed Insolvency Practitioner, acts as joint supervisor of the IVA and, in a letter dated 1/8/2012, he explained that the partnership business had suffered from the effects of the downturn in the economy, aggravated by a dispute with the finance companies who accepted the return of some coaches but then sold them at a gross undervalue. They then pursued Mrs Rowbotham for the shortfall. The only solution to this dispute was to enter into the IVA, which provided for Mrs Rowbotham to realise her 50% share of the equity in her business property at Hinton-on-the-Green. Mr Bowden added that the business itself was not included in the IVA, and was not affected by it.
(v)	A progress report on the IVA was prepared by Mr Bowden in February 2013. It appears that the amount owing to the non-secured creditors was £213,674. The original agreed terms of the IVA provided for Mrs Rowbotham to realise her 50% share at such a value as would provide a dividend to creditors of 36.37p in the pound. However, the property was marketed without success. Following a re-assessment of the property’s likely value, the amount available for the creditors was estimated at just £41,715 – resulting in a dividend of 19.52%. The IVA, however, was intended to prevent the vehicle suppliers from making Mrs Rowbotham bankrupt. Had they done so, the likely dividend would have been 2.84%.
(vi)	Mr Bowden added:
“Although it was not anticipated that the Debtor would be able to pay monthly contributions from income, the IVA required the Debtor to provide regular details of income and expenditure for review by the Joint Supervisor. Based on the information received, I have concluded that the Debtor has insufficient income to make monthly contributions and none have been paid.”
(vii)	The Traffic Commissioner decided to hold conjoined public inquiries to deal with the question of whether or not he should take any action in relation to the partnership licence and, at the same time, to consider the application for a new licence. 
(viii)	At the conjoined public inquiries, which took place at Birmingham on 10/4/2013, the Traffic Commissioner revoked the old partnership licence with the consent of the partnership. It had been accepted that Dawn Ann Rowbotham no longer played a significant part in the running of the business, which had in reality ceased to be a partnership. It was also accepted that the partnership was unable to demonstrate financial standing for the authorisation it held. In addition the Traffic Commissioner found that there had been a material change in circumstances in that Mrs Rowbotham had entered into an IVA. This decision has not been challenged by way of appeal.
(ix)	In relation to the application by Mrs Rowbotham (t/a Ann’s Executive Coaches) the Traffic Commissioner found that, in the absence of the IVA, he would have been satisfied as to financial standing.
(x)	The Traffic Commissioner went on to find that the IVA was made as a result of debts arising from the partnership business, and its purpose was to “hold back a barrage of debts”. The property that Mrs Rowbotham had agreed to sell in order to provide funds to be distributed under the IVA (and to thereby protect her other assets and business) had not been sold at the time of the public inquiry. Consequently, there was still considerable uncertainty about how the IVA would resolve Mrs Rowbotham’s financial difficulties. The property that the creditors wanted to be sold and had expected to sell for a certain price had not sold, and there was a possibility that, when a sale was finally agreed, the figures might be such that the creditors would refuse to accept the terms of the IVA. If that happened, the financial resources put forward to support the application would be at risk.
(xi)	The Traffic Commissioner decided that, unless and until the IVA was completed and the debts thereby settled by agreement, he was not satisfied that Mrs Rowbotham had either the necessary financial standing, or the necessary good repute, to be granted an operator’s licence under section 14ZA(2) of the 1981 Act.
(xii)	The Traffic Commissioner added that:
“If and when the IVA ends, the applicant might choose to apply to re-join the PSV industry. I would not have a problem with this”.

3)	At the hearing of this appeal, the appellant did not attend and was not represented. An email was received from the appellant’s representatives on 1/8/2013 stating that Mrs Rowbotham was happy for the appeal to be dealt with in her absence. We therefore decided to determine the appeal on the papers before us.

4)	Following the Traffic Commissioner’s decision, Mr Bowden wrote to the Office of the Traffic Commissioner stating that the purpose of the IVA was not to “hold back a barrage of debts”. Rather it had been agreed following a drop in business - which meant that some vehicles were returned to the finance companies. A dispute then developed because the returned vehicles were “resold for a fraction of their value” thus causing shortfalls.

5)	Mr Bowden said that the reduced dividend of 19.52% had been offered to creditors – and this had been agreed on 9/4/2013 – the day before the public inquiry. However, it appears from the transcript that the Traffic Commissioner was not informed that the reduced dividend had been agreed. Mr Bowden’s letter added: 

“There continues to be interest in purchasing the property and if a sale can be completed, net funds will be distributed to creditors and the IVA will be closed”.

The obvious inference to draw is that, as of the date of the public inquiry, no sale of the property had been agreed and, certainly, no contracts had been exchanged.

6)	Applicants for a standard PCV licence must be of the appropriate financial standing - section 14ZA(1)(c) of the Act. Regulation 5 of the Road Transport Operator Regulations 2011 states that a standard licence granted under the 1981 Act constitutes an authorisation to engage in the occupation of road transport operator for the purposes of Regulation 1071/2009 in the capacity of road passenger transport operator. Article 7 of Regulation (EC) 1071/2009 states that the rates to be applied shall be those obtained on the first working day of October and published in the Official Journal of the European Union. They shall have effect from 1 January of the following calendar year.  The figures that came into force on 1/1/2013 were £7,200 for the first vehicle and £4,000 for each additional vehicle. Consequently, at the time of the public inquiry, Mrs Rowbotham had to show access to readily available capital and reserves in the total sum of  £19,200.

7)	The purpose of the requirement to demonstrate the requisite financial standing is to ensure that an operator’s vehicles are safe to use on public roads, to ensure that passengers and other road users are not put at risk, and to ensure fair competition between operators, within the constraints of the regulatory regime. The key test is whether the applicant or operator has available capital and reserves of at least the sum specified. “Available” is defined as: “capable of being used, at one’s disposal, within one’s reach, obtainable or easy to get”. The leading case, 1992/D41 J.J. Adam (Haulage) poses three questions:

•	how much money can the operator find if the need arises?
•	how quickly can he find it? 
•	where will it come from?

8)	An operator may prove the availability of financial resources or capital and reserves in a number of ways. However, in all circumstances, the funds or resources relied upon must be reasonably secure and not at risk of being diverted for the payment of other debts such as tax, wages or finance payments. The funds also have to be available to the applicant or operator for a reasonable period of time, so an evidential snapshot is insufficient. This is why Traffic Commissioners will want to see accounts, and bank statements over a period of three months or more.

9)	In this case, the Traffic Commissioner found that:

”The applicant has some monies in an account today that potentially meet the requirement; however, that ignores the IVA and it is not being concluded.”

10)	We are satisfied that it would have been entirely unrealistic for the Traffic Commissioner to have ignored the level of debt facing Mrs Rowbotham, regardless of the circumstances leading up to it. The IVA scheme is a Government created scheme to help those with unaffordable unsecured debts. It may help people who have little prospect of repaying their debts in full - but who want to avoid bankruptcy and repay as best as they can. Once a person who has entered into an IVA has completed all the repayments agreed, the insolvency practitioner will issue a Certificate of Completion and send it to the Insolvency Service. Until that time, even though a provisional agreement may have been reached about how the proceeds of sale of an asset will be distributed, a person’s other assets and funds are vulnerable. For example, if circumstances change and the insolvency practitioner cannot get the creditors to agree to new terms, the IVA will end without satisfactory completion and the debtor can still be made bankrupt.

11)	We would not wish to hold that an IVA inevitably means that a person is unable to rely upon their assets to demonstrate financial standing. It all depends upon the level of debt, the nature and value of the assets or income designated to be the subject of the IVA, the amount and nature of other assets held, the financial standing required, and the likelihood (or otherwise) of the IVA concluding with a satisfactory Certificate of Completion.

12)	In this case, on its facts, we consider that the Traffic Commissioner was correct to say:

“If the IVA fails, then the monies that I am told would be for vehicle maintenance would then at that stage be sought by the creditors”.

13)	We find that the facts relating to the unsatisfied and yet to be completed IVA, which at the time of the public inquiry depended upon a sale that had not been agreed, fatally undermined Mrs Rowbotham’s application. The funds she relied upon to show financial standing were not secure enough to be safely regarded as “readily available”, especially when set against her debts.

14)	It follows that this aspect of the appeal fails. We would only add that we think it reasonable and appropriate for the Traffic Commissioner to indicate at the end of his decision that if and when the IVA is completed, the appellant could apply to re-join the industry.

15)	We turn now to the question of repute. Here, the Traffic Commissioner gave no reasons whatsoever for finding, as he did, that the financial issues raised by the IVA were such that the applicant had failed to satisfy him as to the necessary good repute.

16)	Not all legitimate businesses succeed. Companies can fail for any number of reasons and there are times when business people, for no fault of their own, find that economic or other trading circumstances overwhelm them.

17)	As we said in Pemberton Transport Ltd [2010] UKUT 471 (AAC), a history of involvement with dissolved companies without any evidence of actual wrongdoing will not of itself amount to a loss of repute:

“… there is no evidence whatsoever of any conduct, whether as a director, Company Secretary or Transport Manager, which deserved criticism from the Traffic Commissioner. The Traffic Commissioner appears to us to have taken a broad brush ‘no smoke without fire’ view that, upon careful analysis, lacked substantial foundation.

We would add that the history in Pemberton was far more extensive, and repetitive, than that arising here.

18)	In the absence of an explanation, we can only conclude that the Traffic Commissioner considered that either the facts spoke for themselves, or that loss of repute was automatic where an IVA has been agreed. But we do not agree that an IVA in itself, and regardless of the circumstances, must always lead to a negative finding on repute. There is no statutory or jurisprudential basis for such a conclusion and there is nothing in the Senior Traffic Commissioners Statutory Guidance to suggest that an IVA should necessarily result in a loss of repute. The facts, as disclosed by the IVA supervisor, do not suggest wrongdoing. 

19)	We have therefore decided that the finding of loss of repute arises from an error of law, and must be set aside. On this point, and this point alone, the appeal succeeds.

Judge Mark Hinchliffe, DCP
28/8/2013