DALLAS, Aug. 30, 2016 /PRNewswire/ -- On August 26, 2016, Delaware's Secretary of State (SOS), Jeffrey Bullock, issued a guidance letter ("Letter") to update certain holders in the Delaware SOS Voluntary Disclosure Agreement (VDA) program. The Letter was first sent to holder advocates with current clients in the VDA program, but it was indicated that the same Letter will be sent out to all currently enrolled holders. Highlights of the Letter are as follows.
As a result of the Memorandum Opinion issued on June 28, 2016, in the Delaware federal court case of Temple-Inland, Inc. v. Cook, a number of questions have arisen from holders currently enrolled in Delaware SOS VDAs, as well as from those considering enrolling. Secretary of State Jeffrey Bullock indicated in the Letter the importance of addressing some of the questions being asked regarding the impact of the court's opinion relative to the SOS VDA program. The Letter indicates that the court's ruling in the Temple-Inland case is limited to the specific facts and circumstances of the unclaimed property audit at issue in the case. Specifically, it states the decision was critical of several specific executive actions taken by the state escheator, which the court considered to be procedurally unfair, especially when reviewed in the totality of how the audit was conducted. Secretary Bullock states that the actions taken by the state escheator "bear little, if any, resemblance, to the administration of the SOS VDA program."
The Letter notes that after reflecting on future disposition of the look-back period question, it has been decided that "…VDAs will from this point forward be settled based on a look back period of 10 years plus dormancy from the date a holder enrolled." Note: Since the Delaware dormancy period for most property types is five years, this effectively results in a 15-year look-back period in most situations. As this action results in the reduction of several years of estimation for many current VDA enrollees (whose look-back period dated back to 1996 prior to the Letter), this is generally good news for the holder community.
The Letter notes holders are expected to "reasonably estimate" liabilities for periods in which the holder's records are unavailable or are otherwise insufficient to prepare a report of presumed past due unclaimed property liability. It also emphasizes no estimation is to be involved for non-Delaware domiciled entities, and all such estimated property would be reportable to the holder's state of incorporation or formation. However, the Letter does not appear to outline or propose any changes to the VDA program's estimation practices in light of the recent Temple-Inland decision. It is worth noting that the decision was particularly critical of the estimation methodology being used by Delaware. Thus, the fact that the Letter implies business as usual with respect to the estimation methodology appears to be at odds with the Temple-Inland decision.
Suggested 2017 Legislative Changes
The Letter further notes that some needed changes cannot be made until the Delaware Legislature reconvenes in January 2017. It indicates the SOS Office and the Department of Finance will propose additional "common sense changes" to Delaware's unclaimed property law. Three such items specifically mentioned in the Letter are (i) "…a further reduction in the VDA look-back period that is in accord with most states' look back periods," (ii) a new record retention provision for unclaimed property reports tied to the current Delaware statute of limitations, and (iii) possibly a negative reporting requirement. If implemented and enacted in 2017, the proposed changes outlined in the Letter should be some good news for the holder community.
Unfortunately, the SOS guidance Letter does not address a number of the more important unclaimed property issues raised in the recent Temple-Inland federal court decision in Delaware. In particular, the lack of proposed changes to the current estimation methodology falls short of the meaningful change expected by the holder community on the heels of the Temple-Inland decision. However, it does provide a ray of hope to the holder community, by suggesting some of the open issues will be addressed through legislation when Delaware's Legislature reconvenes in 2017. Holders seeking additional clarification on how these matters relate to their specific factual situations may contact their designated Ryan Abandoned and Unclaimed Property representative or one of their Ryan contacts below.
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TECHNICAL INFORMATION CONTACTS:
Mark A. Paolillo
Abandoned and Unclaimed Property
Abandoned and Unclaimed Property
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