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Delaware Senate Bill 281 Expands State’s Tools to Enforce UP Statutes

By: Cathleen A. Bucholtz Jim Sadik Robert M. Tucci Steven Swaigenbaum Troy R. Wangen |

A SNAPSHOT – WHAT YOU NEED TO KNOW

Delaware Senate Bill 281 (DE SB 281”) was signed into law on June 30, 2022, and among the most noteworthy changes enacted by DE SB 281 are:

  • Allowing the State Escheator to issue audit notices without first notifying the holder of the Secretary of State’s voluntary disclosure program if the holder has not completed or responded timely to a verified report or compliance review
  • Expanded record retention requirements for holders
  • Changes to the notification requirements that Delaware must follow before liquidating securities it receives as unclaimed property

We want to encourage all companies to become familiar with these revisions as the most notable outcome is the impact of an unexpected unclaimed property examination.  For almost seven years (since DE SB 141 was signed into law on July 23, 2015), companies have had the benefit of a “forewarning” of a potential Delaware unclaimed property examination via the voluntary disclosure invitation process.  However, this new bill will result in some companies being subject to an audit without the benefit of first considering the benefits of pursuing the voluntary self-audit and disclosure process.

The True Partners Unclaimed Property Management Team is well versed in these Delaware updates and we welcome you to reach out to any member of our team if you have any questions about this or any other developments likely to impact your company.

THE DETAILS

The majority of the provisions in DE SB 281 became effective on June 30, 2022, however, per the legislation some of the newly enacted changes to the statutes are effective “retroactively to any claims, examinations, voluntary disclosure agreements, or litigation pending as of the effective date of this Act”.  The details of DE SB 281 include the following:

Effective June 30, 2022

12 Del. C. § 1130 – Two new exclusions were added to the definition of property

  • 12 Del. C. § 1130 (19)(c)(6) excludes from the definition of property any property where the apparent owner is a foreign government, the federal government, any other state government, or any local or municipal government not within the state of Delaware.
  • 12 Del. C. § 1130 (19)(c)(7) excludes from the definition of property any payment or credit arising under the 2022 Delaware Relief Rebate Program.

12 Del. C. § 1170 – Increases State Escheator’s authority to request verified reports and compliance reviews

  • New language permits the State Escheator to request a verified report of a holder that has or has not filed a report regardless of whether the State Escheator believes the person may have filed an inaccurate, incomplete, or false report. Prior law only permitted the State Escheator to require this if the holder did not file a report OR if the holder filed a report, but the State Escheator believed the person may have filed an inaccurate, incomplete, or false report.  Similarly, SB DE 281 changed the language regarding the State Escheator’s authorization to perform a compliance review by no longer requiring the State Escheator to believe that the holder may have filed an inaccurate, incomplete, or false report.

12 Del. C. § 1172 – Allows audit initiation without first notifying holder of VDA program

  • Modified the language allowing for an audit notice without first sending a VDA invitation when Delaware is in a joint audit with another state by adding a provision that the State Escheator does NOT have to consult with the SOS before sending the audit notice.
  • Also, adds another circumstance when the State Escheator may authorize an audit without the VDA invitation first if the State Escheator determines that the holder has not completed or responded to a verified report or compliance review.

12 Del. C. § 1186 – Amendment regarding agreements to locate property.

  • Modifies the language in 12 Del. C. § 1186 (3) regarding the criteria that must be met for an owner location agreement to be enforceable. While the agreement must still state the amount or value of the property reasonably estimate or expected to be recovered, the new language provides that the amount or value is “computed to the extent disclosure of the amount is permitted under Section 1189”.

Effective retroactively to any claims, examinations, voluntary disclosure agreements, or litigation pending as of June 30, 2022 (the effective date of SB 281)

12 Del. C. § 1145 – Additional language added to the retention of records requirements

  • 12 Del. C. § 1145 (b) provides that a holder who has received a notice of audit or has submitted a written election to enter into a UP VDA, shall retain until the conclusion of the audit, VDA review process, or any related appeal or litigation, records to the present day for 10 years plus the applicable dormancy period under Section 1133, before the earliest of:
    • 1) The State Escheator’s delivery of notice of exam to a holder,
    • 2) The Secretary of State’s delivery of notice that the person may enter into an unclaimed property voluntary disclosure agreement, or
    • 3) the holder’s written election to enter into an unclaimed property voluntary disclosure agreement.
  • 12 Del. C. § 1145 (d)(6) adds to the retention of records section that sufficient records of items that were not reported as unclaimed must be kept to allow a review to determine whether the holder has complied with the DE UP statute.

12 Del. C. § 1150 – Amendments to the State Escheator’s requirements to notify securities owners prior to liquidation

  • SB 281 added language that would permit the State Escheator to liquidate securities prior to sending owner notice and provides that the notice by the State Escheator can send “as soon as the State Escheator deems practicable after delivery”.
  • Also provides that if the State Escheator, upon reasonable inspection determines that the notice may not be received by the owner, may take reasonable steps to correct, update, or validate the last-known address of the owner as contained in the records of the holder as provided to the State Escheator to make it more likely that the notice may be received by the owner.
  • In addition, SB 281 modified language such that the State Escheator and the State of Delaware are not liable to an owner due to securities or other non-money items being liquidated if one of the following applies:
    • 1) notice has been sent,
    • 2) the State Escheator has not acted unreasonably in determining that mailed notice would not be received by the owner, or
    • 3) on reasonable inspection, the State Escheator does or does not take reasonable steps to correct, update, or validate the last-known address of the owner as contained in the records of the holder as provided to the State Escheator to make it more likely the notice may be received by the owner.

12 Del. C. § 1159 – Technical change

  • New language in § 1159 removed the phrase “subsequent to satisfying the notices requirements of § 1150” and replaced it with “subject to § 1150”. This change was needed as the proposed language of § 1150 no longer requires notice by the State Escheator prior to liquidation of a security.

12 Del. C. § 1160 – Amendment regarding the date of owner deemed to have received notice regarding a security

  • Adds that the date the State Escheator mailed notice to the owner, or the date notice was otherwise provided as required by the law in effect at the time the property was delivered to the State Escheator, is deemed to be 30 days after the property was delivered to the State Escheator if the date can’t otherwise be reasonably determined or if no notice was required.

12 Del. C. § 1166 – Amendment regarding certain claims payments

  • Adds 12 Del. C. § 1166 (d)(1) and (2) providing that for any property paid or delivered to the State Escheator before 8-1-2022, or for any property paid or delivered to the State Escheator from a bankruptcy proceeding, where the State Escheator subsequently determines that the holder’s payment or delivery of property is less than the amount reported by the holder, the State Escheator shall pay any claim allowed on a pro rata basis determined by dividing the amount of property paid or delivered by the amount of property reported.

12 Del. C. § 1167 – Amendment to regarding claims and rights of appeal

  • New language now provides that in addition to sending a notice of determination, the State Escheator’s initial attempt to pay or deliver property to a claimant starts the 120 period during which a claimant may apply for a hearing and determination of a claim by the Tax Appeal Board.

The full text of the DE SB 281 can be accessed here.