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Delaware incorporated or domiciled entities should be cognizant of a newly enacted Delaware unclaimed property statute that may significantly impact their unclaimed property situations.

Delaware SB 104, enacted on June 30, 2021, has an effective date of August 1, 2021, though specific provisions related to claims, audits, and pending litigation as of the effective date will apply retroactively. Though the intent of the bill is to provide clarification for holders, confirm current examination practices, and address recent litigation, some of the provisions appear to expand the state’s enforcement capabilities, while others contract the protections afforded to holders under the current law.

A summary of the relevant changes made to the Delaware unclaimed property law as a result of DE S 104 follows:

• Revised VDA and Audit Provisions
  • Response Time to VDA Invite Extended. The timing to respond to a VDA invitation is increased from 60 to 90 days. Holders who receive an invitation may enter the VDA program or request to enter the expedited audit program (see below).
  • Audit Records Scope. The State Escheator can examine the records of the holder or a subsidiary or affiliate of the holder to verify the completeness and accuracy of the records, even if the records may not identify property reportable to Delaware. The state is under no obligation to provide a reason or justification for the examination of records, other than that it relates to determining compliance.

DE S 103, which was signed into law on June 30, 2021, and becomes effective on August 1, 2021, is the latest bill to define virtual currency and include it in the definition of “property” as a property type eligible for escheat. Virtual currency is presumed abandoned 5 years after the owner’s last indication of interest and holders must liquidate it within 90 days of filing an unclaimed property report and remit the proceeds to the administrator. As we have seen in similar bills pending in the unclaimed property space, owners have no recourse against the holder or the state for any gains in value post liquidation.

As the use and popularity of virtual currencies rise and become accepted, the states are similarly stepping up their legislation to bring virtual currency within the scope of escheatable property by introducing bills like DE S 103. States are also looking to the holder to liquidate the virtual currency as they are presently unable to take custody of cryptocurrencies in their native form.

The Delaware Secretary of State (SOS) had previously indicated its intent to mail the latest round of VDA invitations on or about May 28, 2021. However, this date has changed to June 11, 2021.

Under Delaware law, the state cannot initiate an unclaimed property examination (audit) unless a company has first been notified in writing by the SOS that it may enter into the SOS VDA Program. Holders who do not enroll in the VDA Program within the 60-day notice period set forth in the letter will be referred to the Department of Finance for an unclaimed property audit.

As VDA invitations may be addressed to senior corporate executives, they often do not reach the person or group responsible for unclaimed property compliance in time to meet the 60-day deadline to prevent an audit.

Unclaimed property holders need to stay vigilant about checking the mail. The DE Secretary of State (SOS) has indicated its intent to send out the latest round of VDA invitations on or about May 28, 2021. VDA invitations are sent several times per year to companies that are identified by the state as “likely being out of compliance” with Delaware’s unclaimed property law. 

Under Delaware law, the state cannot initiate an unclaimed property examination (audit) unless a company has first been notified in writing by the SOS that it may enter into the SOS VDA Program. Holders who do not enroll in the VDA Program within the 60-day notice period set forth in the letter will be referred to the Department of Finance for an unclaimed property audit.

As we find ourselves preparing for Spring reporting (corporations must start the Spring season by submitting reports to Delaware by March 1^st), it is worth highlighting several aspects of the due diligence and reporting processes.

Due Diligence Notices. The due diligence letter is a state mandated requirement that the holder provide notice to the owner before the property is reported and remitted to the state as unclaimed property and is also the holder’s last attempt to establish contact with the owner of dormant property before escheatment.

Method, Timing and Content of the Notice. Typically, a first-class mailing must be sent to the owner 60 to 120 days prior to filing the report, though as is common in unclaimed property, time frames vary state to state. Moreover, certified mail may be required in lieu of, or in addition to, first-class mail (e.g., New York: certified mail for property valued at $1000 or more and for all dividend reinvestment plans). Publication is also required for certain holders in New York, where requirements vary by property type). Many states also provide an exception for mailing to a known bad address, but again, this varies by state.

In states that have adopted a law based on the 2016 Revised Uniform Property Act (“RUUPA”), the time frame for mailing is generally 60-180 days before filing the report, though there are outliers here as well (e.g., Illinois requires notice to be sent 60 days to 1 year prior to the report, and by certified mail for securities valued at $1000 or more, 60 days prior to filing the report). These states have also adopted specific header and language requirements for the notice.

Delaware continues to focus on unclaimed property compliance, with its’ Voluntary Disclosure Agreement (VDA) program at the forefront of this push.  The DE Secretary of State (SOS) has indicated its intent to mail the latest round of VDA invitations on or about February 19, 2021. VDA invitations are sent several times per year to companies that are identified by the state as “likely being out of compliance” with Delaware’s unclaimed property law. 

Delaware’s Office of Unclaimed Property (OUP) has updated its payment instructions for wire and ACH payments, in advance of the upcoming March 1, 2021 Spring reporting deadline. 

MarketSphere Unclaimed Property Specialists has learned that the state of Delaware’s Department of Finance recently mailed unclaimed property audit notices to US corporations incorporated in Delaware. The audit notices target those holders who did not enroll in the Delaware Secretary of State’s Voluntary Disclosure Agreement (VDA) Program within the 60 days of receiving an invitation letter to participate. The invitation letters put the holder on notice that the state believes the holder to be out of compliance with Delaware’s unclaimed property law and invites them to participate in the VDA Program to bring them into compliance. If the holder does not enroll in the VDA Program within 60 days, they are referred for audit.

Corporations both large and small, public, or private can receive a VDA invitation. Under Delaware law, the state cannot initiate a new unclaimed property examination (audit) without first notifying the company that it may enter into the VDA Program (12 De. C. Ch. 11, section §1172). The invitations put the company on notice that if the holder does not enroll in the VDA program within 60 days of the date of the letter, the company will be referred for audit. The Secretary of State mailed approximately 200 invitations in August. Companies who did not enroll in the VDA Program within the 60-day period, may already have, or will soon receive audit notices from the Department of Finance.

MarketSphere Unclaimed Property Specialists has learned that the state of Delaware will soon be mailing unclaimed property audit notices to those companies who did not respond to the latest round of invitations sent by the state on August 21, 2020 to enroll in the Secretary of State’s Unclaimed Property Voluntary Disclosure Program (VDA program). Approximately 200 holders received these letters, which notify the holder that it is “likely out of compliance” with Delaware’s unclaimed property law and inviting them to participate in the VDA program. Any company can receive a VDA invitation, including public or private corporations, large Fortune 500 companies and smaller companies.

In accordance with Delaware law, the state cannot initiate a new unclaimed property examination (audit) without first notifying the company that it may enter into the Secretary of State’s VDA program (12 Del. C. Ch. 11, section §1172).   These letters put the company on notice that if the holder does not enroll in the VDA program, the Secretary of State’s Office will refer the company to the Delaware Department of Finance, who will issue an unclaimed property audit notice upon the expiration of the 60-day notice period.

Delaware continues to focus on unclaimed property compliance, with its’ Voluntary Disclosure Agreement (VDA) program at the forefront of this push.  Since the latter part of 2018, Delaware’s Secretary of State has been consistently mailing VDA invitations and continues this practice on an on-going basis. 

Based on correspondence that MarketSphere received from the office of Delaware’s Secretary of State, the latest round of VDA invitations were mailed on August 21, 2020 to a number of Delaware incorporated companies identified as “likely being out of compliance” with Delaware’s unclaimed property law. 

The correspondence states: 

Today, August 21, 2020, the Delaware Secretary of State’s Office will be mailing about 200 letters to various companies (individually referred to as “Holder”) that have been identified as likely being out of compliance with Delaware law, 12 Del. C. ch. 11, as it relates to reporting dormant, abandoned, or unclaimed property.  Pursuant to our state laws, Delaware cannot initiate new abandoned or unclaimed property examinations (audits) unless a company has first been notified in writing by the Secretary of State that it may enter into the SOS VDA Program.  The letter serves as such a notice to the Holder and strongly encourages participation in the SOS VDA Program, as an audit notice will be issued by the Delaware Department of Finance 60 days after the date of the mailing. 

As the correspondence notes, if a recipient company fails to respond to the notice within 60 days, the Delaware Department of Finance will issue an unclaimed property audit notice upon the expiration of the 60-day notice period.