On July 22, 2015, Delaware Governor Jack Markell signed S.B. 141 into law. S.B. 141 makes significant changes to Delaware unclaimed property law as it pertains to audits, and it makes the voluntary disclosure program, which was to sunset in 2016, permanent. These changes are important for every company that is incorporated in Delaware or does business in Delaware.
Under the new law, before an unclaimed property holder may be selected for audit, the Delaware Secretary of State must provide the holder with written notice that it may enter into the voluntary disclosure program. The company then has 60 days to enter into the program before it can (and likely will) be audited by the State Escheator. The company cannot enter into the voluntary disclosure program once an audit commences.
S.B. 141 also shortens look-back periods for audits and voluntary disclosures. Before S.B. 141, Delaware’s contract auditors could look back to 1981 for unclaimed property during an audit—often relying on questionable estimation practices to do so.
The new law provides the following shortened look-back periods:
|Date Audit Commences||Look-Back Period|
|July 1, 2015 – December 31, 2016||1991|
|January 1, 2017 or after||22 years from date audit notice is received|
Under the old law, holders participating in the voluntary disclosure program were required to look back to 1993, but the new law shortens the look-back period to 1996 for holders that are currently participating in the voluntary disclosure program or that enter the program before December 31, 2016. The look-back period for a holder that enters the program after December 31, 2016 will be 19 years prior to the year in which it entered the program.
S.B. 141 contains one unfavorable provision for unclaimed property holders: it reinstates the statutory interest provision that was repealed in 2014. Delaware may now assess interest on outstanding unclaimed property at a rate of 0.5% per month, with a cap of 25% of the unclaimed property liability. Holders can avoid interest by entering into the voluntary disclosure program.
Because the voluntary disclosure program provides an interest waiver and a shortened look-back period, most holders who receive notices from the Secretary of State should consider entering into the program. At the very least, holders may want to find out what terms they can secure under a voluntary disclosure agreement before proceeding with an audit.