In October South East traffic commissioner Nick Denton revoked the O-licence of Philson Haulage (Southern) after its former transport manager colluded in getting drivers to work over their legal hours, writes David Craik.
TC Denton banned the transport manager, Garrath Jones, for five years, and disqualified former director Philip Dickinson from being involved in an O-licence for the same period. The sanctions followed an early 2013 DVSA investigation which revealed numerous offences of drivers making false records at the chichester-based haulier, which was authorised to operate 45 vehicles and 44 trailers.
It was a depressingly familiar case in the world of road haulage but one with a slightly different twist because Philson had been taken over by Gregory Distribution in February 2013.
In his decision, Denton pointed out that the directors of Gregory Distribution bore no responsibility for what had happened, as the abuses had occurred before the takeover and had been eliminated shortly afterwards.
Indeed, Paul Willis, head of compliance and business support at Gregory Distribution, had suspended and sacked Jones after he had personally identified the transgressions.
Denton emphasised that Gregory Distribution had done its “collective upmost to improve compliance as soon as they realised the situation bequeathed to them”. But this case raises some important questions for hauliers with a proud and spotless O-licence track record looking to make acquisitions.
If something illegal is found during this period of due diligence, what action should the haulier take? Willis, who was present at the Philson public inquiry, could not be reached to provide comment for this article.
However, the traffic commissioner’s office does give some guidance to all operators regarding due diligence. “The sale of businesses within road transport is a commercial matter for the respective parties. Operator licences are not transferable and it is important the relevant traffic commissioner is notified of any changes which may affect the status of the licence, including where there is a change of entity,” a spokesman said.
“Traffic commissioners would expect the new owner to be satisfied that any existing operator licence compliance regime already demonstrates the required roadworthiness and traffic standards and take action to rectify any shortcomings or outstanding compliance issues identified.”
Jared Dunbar, associate at Dyne Solicitors, outlines what this means in practice. The key checks for an acquirer, he states, begin by seeing the target’s Operator Compliance Risk Score data followed by its Vehicle test Maintenance report, or put simply its MoT history.
“If maintenance is undertaken in-house, then it will provide you with an indication of the garage’s capabilities,” he states. “If they use external contractors for maintenance, then it will only be relevant if the purchaser intends continuing with that contractor.”
Brief encounter
The next check will be the company’s Vehicle Encounter report, i.e. prohibition history, and then its maintenance records such as PMIs and daily defect reports. “Cross-referencing of these will indicate how well the drivers are undertaking their daily checks,” Dunbar says.
“Purchasers should also request all information and correspondence with the Office of the Traffic Commissioner, the DVSA and information relating to prosecutions by the CPS, EA and HSE.”
Purchasers should also request copies of any independent audits undertaken and ask whether there have been any complaints surrounding the operating centre by neighbours as this could lead to problems at renewal time and the risk of having to move the operating centre.
“It might be a good idea to get an independent transport consultant or trade body to undertake a full compliance audit prior to purchase if the target company allows it,” Dunbar adds. “If you offer to provide that company with a copy of the audit report, then there should be no reason for them refusing as it would benefit them. So I would have concerns if they did refuse.”
Purchasers should also undertake an internet search to see whether the company has been called to public inquiry before and what the outcome was.
“Also ask to see a copy of the operator’s licence,” Dunbar stresses. “Look to see if there are any specific undertakings on the licence which would be indicative of previous problems or a public inquiry.”
Jennifer Bell, head of corporate at Backhouse Jones Solicitors, says this is a common problem. “I have acted for a large number of companies and individuals who have acquired operators whether by way of share or asset purchase. On every occasion one of the key focuses for the pre-contractual due diligence is the operator’s licence. All too often this is forgotten about completely or a request to see the licence is all that is raised, only to find post-completion that in the case of an asset purchase the operator’s licence has not been transferred or, in the case of a share sale, that there are severe breaches in the
O-licence regime that have rendered it highly likely that the licence will be curtailed or revoked. In either case the buyer is discovering that the company it has acquired cannot operate in the way it had planned or, in some cases, at all. All too often such a discovery is made too late, leaving a buyer in an expensive litigious quagmire.”
Ensuring compliance
She says hauliers should ensure that a thorough due diligence process is undertaken that is specifically tailored to the acquisition of an HGV operator. “All too often there are just a couple of general questions asked such as ‘does the target company hold all necessary licences to operate the business?’ and ‘so far as the seller is aware are there any circumstances that might cause such licence to be revoked?’” she says.
Bell recommends purchasers undertake an onsite compliance audit of all aspects of the target company’s O-licensing regime including maintenance, drivers’ hours, and tachograph analysis. The findings can then be used to decide if the business is still worth acquiring, re-visiting the purchase price and deciding whether monies should be held back until various steps have been undertaken by the target operator to ensure they are compliant.
“This includes tailoring the acquisition agreement so that it contains specific warranties and indemnities to provide the buyer with safeguards for the future,” she states.
What about a situation similar to Philson Haulage? What would happen if something was missed during due diligence?
“Get a trade body or transport consultant in straight away to prepare a full audit of compliance systems,” urges Dunbar. “Alternatively, the company could undertake this audit itself but it needs to make sure it is put in writing and be certain it has the skill capabilities to undertake such an audit. It should also provide training to all drivers and management as required. If maintenance is a problem, implement audit systems, i.e. audit the driver daily defect checks to ensure they are being undertaken properly.”
The new acquirer should then get all tachographs independently analysed and respond to any infringement report with training and/or disciplinary processes.
Legal position
What is your legalposition if you uncover wrongdoing and do nothing?
Jared Dunbar, associate at Dyne Solicitors, answers: “You could not be held accountable for the wrongdoings which occurred before you took over. However, you would be criticised for failing to address them once exposed and allowing them to persist. Addressing the problem can be done by providing staff training, introducing new monitoring systems and auditing processes and discipline.”
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