Business Protection For Scrap Metal Dealers
A scrap yard is a licence with a weighbridge attached.
The licensing regime was built deliberately around named people and named sites, because the trade it regulates had a problem with metal of uncertain origin. That makes the paperwork unusually personal.
So the value of the business is not the stock in the yard, it is the permission to buy it.
The short answer
Scrap metal dealing in England and Wales requires a licence from the local authority, and a site licence names the site manager for each site. Carrying on business as a scrap metal dealer without a licence is an offence, so losing a named individual is a licensing problem before it is a staffing one. Key person cover funds the gap while the authority is engaged and a replacement is put in place.
The Licence Names A Site Manager
Dealers in England and Wales must hold a licence issued by the local authority under the scrap metal dealing regime. A site licence authorises specified sites and names a site manager for each, and the authority assesses whether the applicant is a suitable person to hold a licence.
If a named site manager dies or ceases to act, the licence no longer reflects the arrangements in place and the authority must be told. Carrying on business as a scrap metal dealer without a licence is an offence, so this is not a matter to work out slowly. What the authority will accept and over what period is for them, and contacting them is the first step.
The commercial consequence is immediate. A yard that cannot lawfully buy metal has no trade, while still holding stock, plant on finance and a workforce. Metal prices move, so stock sitting unsold through an uncertain month is an exposure rather than a cushion.
This page is not licensing advice. Your local authority is the authority on your licence, and we deal with the insurance.
What happens in the weeks afterwards
- 1The local authority is contacted about the change to a named site manager
- 2Buying either continues under whatever the authority permits, or stops
- 3A replacement site manager has to be identified and accepted, which is an assessment rather than an appointment
- 4Stock already in the yard has to be managed and eventually sold, into whatever the market is doing
- 5Plant finance, site rent or mortgage, weighbridge costs and wages continue throughout
- 6If the person lost was an owner, the shareholding and any personal guarantees arrive at the same time
Suitability Is Assessed, Not Transferred
The thing that makes this licence harder to replace than a qualification is that it is about the person rather than a certificate they hold.
A local authority considers whether an applicant is a suitable person, which can take account of relevant convictions, enforcement history and other factors. There is no exam to pass that produces a qualified replacement overnight, and there is no guarantee that an obvious internal candidate will be accepted.
That is why the money matters more than it would if the gap were simply a recruitment problem. The business may need to fund a standstill of uncertain length, which is a different calculation from funding a two-month recruitment.
Stock Is Exposed To The Market While You Wait
An unusual feature of this trade is that standing still has a price risk as well as a cost.
Metal prices move, sometimes sharply. A yard holding processed and unprocessed stock that cannot trade normally is carrying a position, and the value of what is sitting there may be materially different by the time it can be sold.
So the exposure during a licensing gap is lost margin plus a market risk on the stock, on top of the fixed costs. Sizing key person cover against a month's profit misses two of the three, which is why this is worth working through properly rather than estimating.
Which cover does what here
Funds the gap while the licensing position is resolved: wages, plant finance and site costs with no buying income, plus whatever it takes to get a suitable replacement in place.
These are usually family businesses where the named individual is also an owner, so the licence question and the ownership question arrive together, and a new owner has to be acceptable to the authority too.
Balers, shears, grabs and weighbridges are heavily financed, and the repayments do not pause because the gate is shut.
The personal side. Where the company employs the person, it can hold life cover on them rather than them funding it from taxed income.
Worth reading next
Common questions
What happens if a named site manager dies?+
The licence no longer reflects the arrangements in place and the local authority must be told. Carrying on business as a scrap metal dealer without a licence is an offence, so contacting the authority is the first step rather than a later one.
Can we just appoint somebody else?+
A replacement has to be identified and accepted by the authority, which assesses whether a person is suitable. That is an assessment rather than an appointment, and there is no guarantee an obvious internal candidate will be accepted.
What is the financial exposure during a gap?+
Lost buying margin, the fixed costs of plant finance, rent and wages, and a market risk on stock already held, because metal prices move while you cannot trade normally. A month's profit covers none of it properly.
Is this a family business problem?+
Usually, yes. The named individual is very often also an owner, so the licence question and the ownership question arrive together, and any new owner needs to be acceptable to the authority as well as to the family.
Can insurance keep the licence?+
No. A policy cannot make an authority accept a replacement. What the money does is let the business survive a standstill of uncertain length instead of being forced to sell stock or plant to pay wages.