June 30 is the deadline to enter into the new Unclaimed Property Voluntary Disclosure Program—run by Delaware’s Secretary of State (“SOS”)—which temporarily supplants the State Escheator’s voluntary disclosure process. Any entity that has operating entities or publicly held companies incorporated in Delaware should make sure that they have considered this opportunity. The program has been designed to provide a pathway to unclaimed property compliance for skittish corporations—many of which have just learned of their filing obligations and of problems with the prior voluntary disclosure program run by the State Escheator. Reed Smith represents several clients participating in the new SOS Voluntary Disclosure Program.
Delaware collects more than $500 million in unclaimed property per year, hiring private audit firms to conduct multi-year audits of Delaware-incorporated companies on a contingent-fee basis. The tactics of the Department of Finance—along with the specter of whistleblower claims—have caused companies to consider whether the unclaimed property exposure outweighs other benefits of incorporating in Delaware. As a result of such concerns, the legislature designed a new amnesty-like program to allow companies to become compliant with unclaimed property, and delegated authority over the program to the SOS. The program cuts off more than 10 years of back liability—back to 1996 if companies sign up by June 30 of this year—and provides interest and penalty relief, which could reduce exposure by more than half. The SOS promises that the program offers a more efficient and company-friendly process than what companies had experienced dealing with the Department of Finance in the past.
In deference to the roll-out of the new program, Delaware’s Department of Finance had agreed to withhold issuing any new audit notices for unclaimed property for several months; but that stay has now been lifted and audit letters are being sent out in force. Companies become ineligible for participation if they receive a notice of audit. Thus, companies incorporated in Delaware that have not been filing annual unclaimed property returns should seriously consider filing the one-page form to enter the program.
On January 8, 2013, Reed Smith held a teleseminar with Delaware Secretary of State Jeffrey Bullock, asking common client questions about the program. Click these links for access to the Power Point Presentation and Audio Recording of the teleseminar.
If you have questions about Delaware’s unclaimed property voluntary disclosure program, or other unclaimed property issues, please contact the authors of this alert, or the Reed Smith lawyer with whom you usually work.
Client Alert 2013-143