(1)For the purposes of this Chapter an arrangement is a type 1 finance arrangement if conditions A and B are met.
(2)Condition A is that under the arrangement—
(a)a person (“the borrower”) receives money or another asset (“the advance”) from another person (“the lender”),
(b)the borrower or a person connected with the borrower makes a disposal of an asset (“the security”) to or for the benefit of the lender or a person connected with the lender, and
(c)the lender or a person connected with the lender is entitled to payments in respect of the security.
(3)Condition B is that in accordance with generally accepted accounting practice—
(a)the borrower's accounts for the period in which the advance is received record a financial liability in respect of it, and
(b)the payments reduce the amount of the financial liability.
(4)If the borrower is a partnership the reference to the borrower's accounts includes a reference to the accounts of any member of the partnership.
(5)For the purposes of this section the borrower and the lender are not connected with one another.