On February 2, 2017, Delaware enacted Senate Bill 13 (“S.B. 13”) into law, which substantially revised and updated the Delaware Abandoned and Unclaimed Property Law. Section 1176(b) of S.B. 13 directed the Secretary of Finance, in consultation with the Secretary of State, to promulgate regulations on or before July 1, 2017, “…regarding the method of estimation to create consistency in any examination or voluntary disclosure.” S.B. 13 further provided that such regulations must include permissible base periods, items to be excluded from the estimation calculation, aging criteria for outstanding and voided checks, and a definition of what constitutes complete and researchable records. In early May, proposed Delaware legislation, S.B. 79, was introduced in the Delaware General Assembly, which would provide certain amendments to the Delaware Abandoned and Unclaimed Property law. On June 2, additional amendments were introduced in the General Assembly in the form of “Senate Substitute 1” to proposed legislation S.B. 79. Below are significant aspects of S.B. 79, as amended by Senate Substitute 1.
As amended, the Secretary of Finance, in consultation with the Secretary of State, now has until December 1, 2017 (not July 1, 2017 as outlined in S.B.13) to adopt estimation regulations. Holders currently under a Delaware audit will still have until 60 days after the adoption of the estimation regulations to convert to a Voluntary Disclosure Agreement (VDA) with the Secretary of State or enter into an expedited audit arrangement with the Department of Finance. However, holders undergoing a securities audit, in which estimation is not required, may not elect to convert such audit into a VDA. Also, holders whose Delaware audit was not commenced on or before July 22, 2015, may not elect to convert such audit into a VDA.
State Escheator Waiver of Penalties or Interest
The State Escheator retains the ability to waive interest and/or penalties in certain situations. However, as noted in the Legislative Synopsis to Senate Substitute 1, certain changes are made to the State Escheator’s authority to grant waivers of interest. The rules are as follows. First, with respect to holders who enter into an expedited audit arrangement, Sec. 1183(a)(2) of the law as amended provides that interest will be waived for any holder who notifies the Department of Finance within 60 days of the adoption of the estimation regulations of their intent to enter into an expedited audit process, provided the holder “acts in good faith” to complete the examination. Second, with respect to unclaimed property remitted to the state before January 1, 2019, interest may be waived by the State Escheator, in whole or in part, for “good cause shown” for both property associated with a required report, as well as for property associated with a “securities examination in which estimation is not required”; for other situations, 50% of interest may be waived. See Section 1185(b) of the law. Third, with respect to unclaimed property remitted to the state on or after January 1, 2019, interest may be waived by the State Escheator, in whole or in part, for “good cause shown” for property associated with a required report; 50% of other interest may be waived. See Section 1185(c) of the law. However, the proposed statutory language in Senate Substitute 1 indicates that waivers may not be provided by the State Escheator for expedited audits, presumably because the law provides for a “statutory waiver of interest” for holders who have acted in good faith to complete the expedited audit. See Section 1185(c) of the law. It’s not entirely clear what would happen from a penalties and interest standpoint if a holder undergoing an expedited audit were found not to have acted in good faith to complete the audit.
Due Diligence/Owner Notification
The proposed legislation provides that the new due diligence provisions, which generally provided that the due diligence notices be sent via first-class U.S. mail not more than 120 days nor less than 60 days before filing the report, will have a delayed effective date until July 1, 2017. The Legislative Synopsis to S.B. 79 indicates that this is designed to ensure that holders have sufficient time to comply with S.B. 13’s due diligence requirements.
The proposed legislation clarifies that Delaware will defend and indemnify a holder against claims made by a foreign jurisdiction for property paid or delivered to the State Escheator in good faith.
Limitations on Assignment/Transfer of Liabilities
As enacted by S.B. 13,language was added to the law, Section 1147(a), providing that a holder could not assign or otherwise transfer its obligation to hold, pay, or deliver property or to otherwise comply with the duties of the law, other than to a parent, subsidiary, or affiliate of the holder. S.B. 79 as originally drafted purported to repeal that anti-assignment language. However, the Legislative Synopsis to Senate Substitute 1 states that the Substitute language differs from S.B. 79, in that “[i]t makes no change to Section 1147(a) of Title 12.” Thus, assuming the language in the Substitute ultimately is enacted into law, it appears the original language found in S.B. 13 remains in effect.
We caveat that the proposed changes to Delaware law are not yet part of the law. When final regulations relating to estimations are issued by the Department of Finance after consultation with the Department of State, qualifying holders would have only 60 days after the final estimation regulations are adopted to make the significant decisions regarding conversion of existing audits into a VDA or an expedited audit. Because audits are increasing from other states, holders are encouraged to continue vigilant efforts to ascertain and address areas of potential unclaimed property exposure.
Holders seeking additional clarification on how these matters relate to their specific factual situations may contact their designated Ryan Abandoned and Unclaimed Property (AUP) representative.