Buying Plant From a Related Party: What Funders Check
Buying plant from a related entity changes the chattel mortgage file. What funders check on valuation, the tax invoice, GST and PPSR clearance.
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Chattel Mortgage / Related Party / PPSR
When the seller is your own company, a director, or an entity you also control, a chattel mortgage still works. What changes is the evidence: an arm's length price the funder can stand behind, a compliant tax invoice, and a clean register position before anything advances.
Quick Answer
When you buy plant from an entity you also own or control, the funder treats the seller as a counterparty rather than a formality. A chattel mortgage still works, but the file needs independent evidence of value and a clean register position before anything advances.
The Evidence Burden Changes, Not the Instrument
A chattel mortgage works the same way whichever direction the machine travels, and what moves is the evidence the funder needs. Take the same excavator sold twice: once by an unrelated dealer, once by a company you also control. The machine is identical, the price is identical, and the two files are not, because in the first the funder can take the invoice largely at face value and in the second it cannot.
The common assumption is that buying plant from a company you already control is a formality, a transfer on paper between two entities with the same owner behind them. From the funding side it is close to the opposite: who you are buying it from changes the file, and it changes it before anyone has looked at the asset.
The instrument itself does not move. A chattel mortgage entry describes exactly the same structure whichever direction the machine travels. Your entity takes ownership at settlement, the funder registers a registered security interest against the asset, and the interest is discharged when the facility is paid out.
What is unusual is the vendor. In an ordinary purchase the seller is unrelated, with no incentive to inflate the price and no connection to the borrower. In a related party sale that independence is gone by definition, so the related entity is a counterparty rather than a formality, and the file is assessed on that basis from the first read.
What Is the Funder Actually Testing?
Three things: whether the price is real, whether the asset is what the paperwork says it is, and whether it can take clean security over it. Those questions exist on every asset deal, but on a related party purchase the usual shortcut for answering the first has been removed.
Related party plant purchases rarely sit with the major banks, whose asset finance credit policy is generally built for straightforward dealer invoices. They are typically funded by non-bank lenders and specialist asset funders, who are set up to read an unusual counterparty rather than decline it on sight. Non-bank lenders account for about 6% of Australian financial system assets, so this is a smaller part of the market than the mainstream, but it is the part where this kind of transaction gets read on its merits rather than filtered out by policy.
In practice, where this lands is a file that is entirely fundable but slower, because two or three pieces of evidence that would normally arrive with the invoice have to be produced separately. Buyers who line those up before agreeing a price rarely have a problem. Buyers who agree a price first and then discover the asset is still encumbered usually have to renegotiate.
The same principle sits behind the broader assessment logic in the chattel mortgage guide, and it is why low doc asset finance structures are often the practical route when the borrower's own financials are light as well.
How Funders Establish an Arm's Length Price
Through independent evidence of value, because the funder cannot rely on the agreed price alone where the two sides are not independent. An independent valuation is typically required on a related party sale, indicative and varies by lender, and on unusual or heavily specified plant it is close to universal.
| Asset type | Evidence usually required | Why it lands there |
|---|---|---|
| Common, easily benchmarked plant | Desktop evidence or comparable sales, in some cases | An active resale market gives the funder its own reference |
| Standard vehicles and light commercials | Trade guide evidence, sometimes with an inspection | Published values exist and are checkable independently |
| Heavily specified or modified plant | Full independent valuation, close to always | Modifications make comparables unreliable |
| Older assets near end of useful life | Independent valuation plus a condition report | Value turns on condition rather than on age alone |
| Assets with no active resale market | Independent valuation, and appetite narrows regardless | The funder's recovery position is difficult to establish |
An independent valuer gives the credit team an arm's length price the funder can stand behind, and that single document decides more related party files than anything else. Structural questions such as term and balloon payment are secondary until the price question is settled.
What Does the Tax Invoice Have to Show?
It has to be a real invoice, issued by the selling entity in its own name, describing the asset the way it will be described in the security documents. That sounds obvious and it is the second most common thing that stalls these files, behind the register.
A tax invoice from a related seller carries the same requirements as any other, and the funding is written against it. Where the description on the invoice does not match the serial, VIN or plate detail on the security documents, the funder cannot register cleanly, and the fix is a reissued invoice rather than an amended registration.
Whether GST applies, and how it is treated on both sides, depends on the registration status of each entity and how the sale is structured. That is a question for your accountant or registered tax adviser rather than for a broker. Where the seller is not registered, both the invoice and the funding structure change. Switchboard's role is the finance question, not the tax treatment.
Why the Register Holds Up More Settlements Than Credit Does
Because the existing secured party's registration stays attached to the asset until it is discharged, and it does not transfer with the sale. The incoming funder will want a clean register position before it advances. This is the single item most often left until last and the one most likely to hold up settlement.
| Search result | What it means | What has to happen next |
|---|---|---|
| No registration against the asset | The asset appears free to sell | Proceed, and re-run the search close to settlement |
| Registration by the seller's financier | The original facility has not been paid out | Payout figure obtained and discharge arranged at settlement |
| Registration by an unrelated party | Someone else has a claim the seller may not have disclosed | Identify the holder before any price is agreed |
| Serial or VIN does not match | The asset on the invoice may not be the asset on the register | Reconcile the identification before the funder will register |
The point that catches people is simple: the security interest follows the asset, not the invoice. If the selling entity financed the machine and that facility has not been paid out, the existing registration is still attached even after the two entities have agreed the sale between themselves. A PPSR check costs almost nothing and answers the question in minutes. The Australian Government's guidance on searching the register is blunt about the consequence: buy goods with a security interest registered over them and they can be repossessed even though you have paid for them.
What Passes and What Fails the Vendor Check?
Evidence passes and intent does not, which is the whole point of the check. Nothing on the list below is about whether the transaction is legitimate, because most of them are. It is about whether the funder can independently satisfy itself of the things it would normally take for granted.
Passes the vendor check
- Independent valuation supporting the sale price
- Compliant tax invoice issued by the selling entity
- Serial, VIN or plate detail matching the register
- Existing registrations identified and set to discharge
- Both entities clearly identified, with directorships disclosed up front
- A documented commercial reason for the transfer
Fails the vendor check
- Price set between the parties with no external support
- Handwritten or informal invoice, or no invoice at all
- Asset identification that does not match the registration
- An existing security interest nobody has moved to release
- Common directorship disclosed late, or only found by the funder
- Sale price that looks engineered around a funding outcome
The last item on the right stops files hardest. Where the price appears to have been reverse engineered from a funding target rather than from the asset's worth, a funder will not simply reprice it, because the issue is the integrity of the transaction rather than the margin. The general mechanics, including how these structures behave over a normal term, are covered in the chattel mortgage guide for small business.
Which Parts Need a Solicitor and an Accountant?
The price you set and the reason for the transfer are legal and tax questions before they are finance questions, and both should be settled before a funder is approached. A broker can tell you what evidence a credit team needs. A broker cannot tell you whether the transfer itself is sound.
The point worth raising plainly is this: a transfer of assets out of one entity and into another at less than market value can be examined later if the selling entity runs into trouble, and shared directorship does not insulate the transaction.
Whether that risk applies depends on the solvency of the selling entity, the timing and the price, and it is a question for your solicitor before you sign anything. It is also the reason funders weigh an independent valuation more heavily than they weigh your own explanation of the transfer.
Alongside that, your accountant or registered tax adviser handles the GST treatment, the depreciation position on both sides, and whether the transfer achieves what the restructure was meant to achieve. In practice, the buyers who get through cleanly are the ones who had both conversations before agreeing a number, not after a funder queried it.
If the selling entity is carrying a tax liability of its own, that changes the sequence again, and the evidence pack a credit desk needs on an ATO debt file covers what that side requires.
What Documents Does the Lender Need?
Five items, and the identification detail carries more weight here than it does on a straightforward dealer purchase, because the security interest follows the asset rather than the invoice.
| Document | What it proves | Who produces it |
|---|---|---|
| Tax invoice from the selling entity | A real sale, in the seller's own name, at a stated price | The selling entity |
| Independent evidence of value | An arm's length price the funder can stand behind | An independent valuer, not either party |
| Asset identification detail | That the asset financed is the asset registered | Taken from the asset itself and checked against the register |
| Current PPSR search | Whether the asset is genuinely free to sell | The buyer or the broker, before terms are agreed |
| Entity and control detail | Who controls each side and how they are connected | Both entities, disclosed up front rather than discovered |
The exact list varies by lender and by asset type, and a broker can confirm it before you agree a price. The wider picture of what a business can finance across entities sits in the business owners finance hub.
A related party purchase is not a harder deal, it is a differently evidenced one. The instrument does not change: your entity owns the plant from settlement and the funder registers its interest against it. What changes is that the seller stops being background detail and becomes part of the assessment, which is why an independent price, a compliant tax invoice and a clean register position carry more weight here. The price and the reason for the transfer are questions for your solicitor and accountant first.
Key takeaway: Settle the valuation and the register position before you agree a price with the related entity, not after.Frequently Asked Questions
Yes, and specialist asset funders assess this kind of transaction regularly. What changes is the evidence burden rather than the instrument: the funder will normally want independent evidence of value, a compliant tax invoice issued by the selling entity, and confirmation that any existing registration over the asset is released at settlement. An independent valuation is typically required on a related party sale, indicative and varies by lender. The chattel mortgage entry sets out how the structure itself works.
Usually, because the funder cannot rely on the agreed price alone to establish market value where the two sides are not independent. An independent valuer gives the credit team an arm's length price the funder can stand behind, and that single document decides more related party files than anything else. Where the asset is common and easily benchmarked, some funders will accept desktop evidence instead, which is one of the practical differences covered in the chattel mortgage guide for small business.
It depends on the registration status of both entities and how the sale is structured, which makes it a question for your accountant or registered tax adviser rather than for a broker. What matters on the finance side is that the transaction is supported by a compliant tax invoice from the selling entity, because that is the document the funding is written against. Where the seller is not registered, both the invoice and the funding structure change, and the tax treatment should be confirmed before you commit.
No. The existing secured party's registration stays attached to the asset until it is discharged, so the incoming funder will want a clean register position before it advances. Running a PPSR check before you agree terms is the cheapest way to find out whether the asset is genuinely free to sell, and it is the step most often skipped when both sides already know each other. If a registration is found, a payout figure and a discharge have to be arranged as part of the settlement rather than afterwards.
A transfer of assets between related entities at less than market value can be examined if the selling entity later runs into difficulty, and shared directorship does not insulate the transaction. Whether that risk applies to your situation depends on the solvency of the selling entity, the timing and the price, and it is a question for your solicitor before you sign rather than after. It is also part of why funders weigh an independent valuation more heavily than any explanation. A current PPSR register search sits alongside that as the other standing check.
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