Does Professional Indemnity Cover a Lost Security Interest From a PPSR Registration Error?

Generally not on its own. If a PPSR registration error costs an equipment or asset financier its own priority over a financed asset, that’s typically a direct financial loss to the financier, the kind of thing professional indemnity isn’t built to respond to. It’s a different story where someone else, not the financier itself, ends up out of pocket because of it.

What does a PPSR registration error actually look like?

It’s usually a process issue rather than one dramatic mistake. A registration lodged late, an incorrect detail in the collateral description or a security interest not correctly flagged can each mean the financier’s claim over the financed asset doesn’t carry the priority it was meant to. Vehicles, machinery and business equipment are exactly the kind of asset this affects, since the financier’s security sits over a specific, often movable and sellable item rather than real property. A fit-out is just as common an example. It doesn’t move. It can still carry just as much value as a piece of equipment. The error often stays invisible until the moment it matters most: the borrower becomes insolvent and the financier goes to recover the asset.

Why doesn’t professional indemnity cover the financier’s own lost priority?

Because it’s a direct loss to the financier, not a claim brought by someone else. This is the same distinction that already applies to a straightforward bad debt: a loan going bad is a credit risk, not an insurance claim, unless there was negligence behind how it was originally assessed. A registration error that only costs the financier its own recovery on a defaulting borrower sits in a similar category. Professional indemnity is built to respond to a third party’s claim that the financier’s own conduct caused them a loss, not to the financier absorbing a shortfall itself.

When would a PPSR registration error actually become a professional indemnity claim?

Typically when someone other than the financier ends up out of pocket because of it. A co-financier funding part of the same facility, an investor in a pooled lending arrangement or another party relying on the financier’s process to protect a shared security position could each have grounds to allege the registration was handled negligently if it wasn’t. That’s the shape of claim professional indemnity is designed to respond to: a third party’s loss, not the financier’s own.

Does this only affect equipment and asset financiers or lenders generally?

The registration itself sits across secured lending broadly. It’s a particularly live issue for equipment and asset financiers specifically, though. Their security often sits over a movable, sellable asset like a vehicle or a piece of machinery, not real property. Just as often it’s a fit-out instead, something that stays in place but still carries real value. Whether that security actually holds up in a dispute or an insolvency comes down to whether the registration was done correctly in the first place.

Key Takeaways

The information in this article is general in nature and does not constitute legal, financial or insurance advice. Please speak with a qualified adviser about your specific circumstances.