Abandoned and Unclaimed Property Alert: Department of Finance Delays Adoption of Estimation Regulations as Department of State Adopts Final Estimation Regulations

DALLAS, July 13, 2017 /PRNewswire/ -- On June 29, 2017, Delaware Governor Carney signed into law Senate Substitute 1 for Senate Bill 79 ("SS1 SB 79"), effective immediately. In addition, the Delaware Department of State (DOS) recently adopted its final estimation regulations and announced several updates important to those either currently enrolled in a DOS unclaimed property Voluntary Disclosure Agreement (VDA) or who may be contemplating entering into one. Highlights of these recent Delaware developments follow.  

Department of Finance Estimation Regulations 
As amended by SS1 SB 79, the deadline for estimation regulations from the Secretary of Finance is now December 1, 2017, as opposed to the previous date of July 1, 2017 as provided for in SB13. It is possible that the Department of Finance estimation regulations, on the heels of the Department of State finalizing its estimation regulations, may be promulgated prior to this date.

Conversion of Existing Audit to VDA 
Any holder currently undergoing a Delaware audit that received a Notice of Examination from the State Escheator on or before July 22, 2015, except for any securities examination in which estimation is not required, is potentially eligible to convert the pending examination into a VDA. However, in order to effect the conversion, a holder is required to file an executed copy of a Notice of Intent to Convert within 60 days of the effective date of Department of Finance (DOF) estimation regulations. As stated above, the DOF has not yet adopted such regulations.

DOS Estimation Regulations Are Finalized 
The Delaware DOS has issued final estimation regulations, effective July 1, 2017. The DOS noted some 15 suggestions it received, with respect to the proposed estimation regulations, and stated that it had "…considered all of the written comments and suggestions and decided not to make suggested changes to the proposed regulations based upon the written comments at this time." [emphasis added] However, it stated that the DOS found it appropriate to make certain "non-substantive clarifications" to the proposed regulations. Those changes are summarized as follows.

First, the final regulations now state that a management representation letter regarding what property types are available and for what years needs to be signed and notarized by an officer of the company. It is to be furnished at the conclusion of the holder's scoping analysis and presented as part of the holder's findings to the DOS. The holder is then bound by this representation, absent good cause determined at the discretion of the Secretary of State. Second, with respect to the holder's analysis of aged credit balances on the company's books and records, holders may review recent year-end agings, and not just quarterly ones, relative to Accounts Receivable aging reports for net credits aged 90 days or greater. Third, the final regulations indicate that nothing in the regulation "…shall preclude a holder from the use of statistical sampling should the population of credits identified be large enough to warrant sampling." It is indicated that the DOS and holder must agree to any sampling, projection, and estimation techniques employed in order to complete a VDA. In summary, the key concerns expressed by the U.S. District Court in the Temple-Inland case do not appear to have been addressed in the DOS final regulations. 

DOS Accepting New Enrollments in the SOS VDA Program 
The DOS has stated that it is accepting enrollment of holders into the Secretary of State (SOS) VDA program. An eligible holder can enroll in the program by completing Form VDA-1.

State Escheator Waiver of Penalties or Interest 
The State Escheator retains the ability to waive partial interest and/or penalties in certain situations. However, as noted in the Legislative Synopsis to SS1 SB 79, certain changes are made by the new legislation to the State Escheator's authority to grant waivers of interest. The new rules in this area were previously summarized in Ryan's recent Alert on Delaware developments, Delaware Proposes Delay in Adoption of Unclaimed Property Estimation Regulations.

Due Diligence/Owner Notification 
SS1 SB 79 provides that the new due diligence provisions, which provided for owner notification due diligence letters to be sent via first-class U.S. mail not more than 120 days nor less than 60 days before filing the report, now has a delayed effective date of July 1, 2017. The Legislative Synopsis to the legislation indicates this is designed to ensure that holders have sufficient time to comply with the new owner notification requirements.

Foreign Property 
The SS1 SB 79 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 SB 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. SB 79 as originally drafted purported to repeal that anti-assignment language. However, the Legislative Synopsis to SS1 SB 79 states that the enacted legislation differs from the earlier version of S.B. 79, in that "[i]t makes no change to Section 1147(a) of Title 12." Thus, the language found in SB 13, referred to above, remains in effect, subject to any court challenge to the constitutionality of such a provision.     

Summary 
When final regulations relating to estimations are issued by the DOF, qualifying holders will have 60 days after the final estimation regulations are in effect to make the significant decision regarding converting an existing audit into a VDA, converting to an expedited audit, or remaining in the current (unexpedited) audit. Until such time as the DOF estimation regulations are adopted, holders are encouraged to continue vigilant efforts to ascertain and address areas of potential unclaimed property exposure and weigh the pros and cons of each option based on their particular facts and circumstances.

Holders seeking additional clarification on how these matters relate to their specific factual situations may contact their designated Ryan AUP representative.

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TECHNICAL INFORMATION CONTACTS:

Mark A. Paolillo
Principal
Abandoned and Unclaimed Property
Ryan
857.288.1976
[email protected]

Susan Han
Principal
Abandoned and Unclaimed Property
Ryan
442.244.2447
[email protected]

Jeff Henshall
Principal
Abandoned and Unclaimed Property
Ryan
404.365.0922
[email protected]

SOURCE Ryan

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