While mergers and acquisitions occur on a regular basis, the unclaimed property consequences of these transactions tend to be an afterthought. Even when unclaimed property compliance is identified as a potential issue, it is most often only reviewed at a very high level, which may result in future problems.
Types of Mergers and Acquisitions
There are generally two types of takeover activity – (i) an asset sale, and (ii) a stock sale. In general for an asset sale, the acquiring company tends not to acquire any historical unclaimed property obligation as it is only acquiring assets. However, in a stock sale, the acquiring company generally become responsible for any historical obligation. To avoid uncertainty regarding historical amounts due, the sale document should include language that specifically addresses this issue.
While the above approach has been the general position taken for merger and acquisition activity, it should be noted that Delaware has recently codified its position that the holder’s successor who has acquired “all or substantially all of the holder’s capital stock or assets, shall be responsible for fulfilling the holder’s obligation to hold for or pay or deliver property.”
The optimal way to avoid unclaimed property issues during a merger or acquisition is to conduct a thorough assessment of the current and historical unclaimed property processes, liabilities, and potential exposure of the company being acquired.