Delaware Department of Finance has proposed two new regulations relating to the reporting of unclaimed property.
The first proposed regulation related to procedures relating to audit appeals. In July 2010, the Delaware legislature passed amendments to Section 1156, providing for review and appeals procedures for holders that did not agree with the Audit Manager's findings under audit. The first proposed regulation relates to this new law.
The regulation would require that attorneys representing corporations on administrative appeal to be licensed in the state of Delaware or have local counsel to be admitted pro hac vice. Among other procedural requirements, the regulation would provide for the independent reviewer to consider all relevant evidence de novo on the record, meaning that the reviewer does not have to give the same weight or interpretation that the Audit Manager gave the evidence. However, the evidence must have been provided to the auditors during the course of the audit and no new evidence will be allowed. The proposed regulation contains procedures familiar to administrative review practitioners.
The second proposed regulation would impose the first due diligence requirement for holders reporting unclaimed property in Delaware. Delaware is one of only a handful of states that currently do not require any due diligence attempts before escheating property to the state. This regulation would require security (stocks, dividends, and other distributions relating to ownership interests) holders to perform due diligence on items in excess of $250. However, if a company has already performed this duty under other federal or state laws within 90 days of the due diligence period, the company would not have to make a duplicate effort.
SEC Rule 17ad-17 requires that two attempts be made to locate lost shareholders, at no expense to the shareholder. However, the efforts required by the SEC are generally required within 2 years and one month of a shareholder becoming a "lost shareholder." This regulation would require holders to send due diligence letters within four months of reporting the shares to the state. As such there would be a gap between the maximum time allowed by the SEC to attempt to contact a lost shareholder and the maximum time allowed by Delaware, thus requiring the state due diligence letter.
The regulation would permit a de minimis deduction against the value of the stocks or dividends for compliance with the regulation.
Both proposed regulations are currently open for public comment through January 31, 2012 and may be made to the State Escheator, Mark Udinski. If your company wishes to take a position for or against these proposed regulations, please contact Barganier and Associates to discuss how they may affect your company and to craft a response to the State of Delaware.