Delaware Enacts Sweeping Reforms to the State’s Unclaimed Property Program


Changes To Delaware Statutes
Delaware Senate Bill 13 (“SB 13”) was signed into law by Governor John C. Carney Jr. on February 2, 2017 with an immediate effective date. Within two weeks of its introduction, the provisions of SB 13 have effectively rewritten many key provisions of Delaware’s unclaimed property program.

Legislation Highlights
As outlined in our last week’s TrueAlert, among the most significant changes brought about by SB 13 to Delaware’s unclaimed property program are the following:

10 Year Look Back Period.  SB 13 provides that the look back period of all voluntary disclosure agreements (“VDAs”) and audits to 10 report years (plus 5 year dormancy period).  For an audit, that would mean that the audit would cover a period of 15 years (dormancy plus 10 report years) from the date the audit notice was received.

10 Year Statute of Limitations and Record Retention.  SB 13 provides for a 10 year statute of limitations for Delaware to seek payment of UP from the date when the holder had a duty to report the property.  Delaware’s record retention requirement for companies also changes to 10 years, which would align the state’s statute of limitations with its look back period.

Use of Estimations to Determine UP Liability.  SB 13 introduces language specifically authorizing Delaware to estimate the company’s potential liability for the periods where information is missing.  While the new legislation does not address specific estimation methodologies, it does require that State Escheator create regulations outlining the proper scope and use of estimations by July 1, 2017.

Ability to Convert an Audit to a VDA. Companies under a UP audit that began prior to July 22, 2015 have the option to convert their audit into a VDA by entering the Secretary of State’s Voluntary Disclosure Agreement program. Companies have 60 days after the State Escheator adopts its new estimation regulations to make this election. Companies under multi-state audits should note that only the Delaware portion of the examination would convert to a VDA.

Expedited Audits.  SB 13 provides that all companies under audit, regardless of date of notice of examination, have 60 days after the State Escheator adopts its new estimation regulations to notify the state that they want an expedited audit.  An expedited audit must be completed within 2 years from the date of the request, and provides for the waiver of interest and penalties  However, in order to qualify the holder must meet state’s timeline in responding to information requests.

Delaware Compliance Reviews. SB 13 authorizes Delaware to conduct a “compliance review” of holder’s UP report if it believes that a holder has filed a report that is inaccurate, misleading or incomplete.  While the review would be limited to the contents of the report under review and the supporting documentation provided by the company, compliance reviews are subject to the new 10 year statute of limitations.

Increased Interest and Penalties.  The interest for non-compliance remains at 0.5% per month, but the maximum that can be assessed increases from 25% of to 50% of the underlying liability.  Penalties for failure to pay are reintroduced at 0.5% per month, with a cap of 25% of the underlying liability.  SB 13 also creates a provision for “Other Penalties” to be assessed if a person enters into a contract to evade an unclaimed property obligation, including a civil penalty of $1,000 per day, up to $25,000, plus 25% of the value of the property that should have been reported.

Limited Liability for State.  If a claim for a security is filed within 18 months after notice is sent by the State Escheator, the state will return the security or will provide a replacement security or the market value of the security at the time the file is claimed.  However, if the claim is filed more than 18 months after notice was mailed, owner is only due net proceeds from the sale of the security.

Information Sharing.  The new legislation now allows Delaware to share information relating to UP examinations with other jurisdictions with confidentiality requirements “substantially similar” to Delaware’s.

E-Filing.  Beginning March 1, 2018, that all reports filed in Delaware must be in a web-based record.

What This Means To Holders
The enactment of SB 13 will have a significant impact on how Delaware manages its unclaimed property program.  Any company that is facing the use of estimation to determine its potential unclaimed property liability, including those participating in the current voluntary disclosure program, should be on the lookout for the State Escheator’s regulations outlining the scope and use of estimations (due on July 1, 2017).  In addition, any company that is currently undergoing an unclaimed property audit by Delaware will want to review the pros and cons of the new options that may be available to them through converting their audit to a VDA or entering into an expedited audit program. 

It is critical to note that failure to convert to either a VDA or an expedited audit will lead to a mandatory interest charge of 0.5% per month up to 50% of the amount required to be paid.  While the State Escheator used to have the authority to waive all interest charges, now that authority is limited to the ability to waive only up to 50% of the total interest required by the statute.

In Closing
True Partners will continue to monitor this and other legislation impacting your company as it arises, and will release relevant updates as additional information is available.

About Unclaimed Property…
Unclaimed property is any intangible property that is owed by a company and has gone unclaimed for a specific period of time by the rightful owner. Every company is likely to generate unclaimed property and has a legal responsibility to report and remit that property to the appropriate jurisdiction. Generally, there is no statute of limitations on a Holder’s unclaimed property liability, and a holder’s state of incorporation can estimate a holder’s potential liability for periods where actual records are not available. Companies not in full compliance with the states’ unclaimed property laws often have many concerns about getting into compliance, including the likelihood of triggering interest and penalty assessments or being selected for an examination. However, once aware of the various rules and processes, every holder should consider taking advantage of the various opportunities available to get into compliance for any past-due property.

Our Expertise
True Partners Consulting’s Unclaimed Property Management Solutions Team is comprised of a national group of professionals with a wealth of experience and knowledge and diverse backgrounds, including industry and government. Our team can offer your company the best combination of experience, expertise, and resources to assist your company, regardless of your company’s industry. We encourage you to contact one of our professionals to discuss any questions or concerns that you may have regarding unclaimed property.

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Cathleen A. Bucholtz
Managing Director
(818) 650-5801

Jim Sadik
Managing Director
(508) 667-3408

Robert M. Tucci
Managing Director
(972) 338-3673


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