Don't sign that Delaware voluntary disclosure agreement!
A major unclaimed property development

July 05, 2016

Tax Law Alert

Author(s): Kenneth H. Silverberg

If you have not yet signed a “Voluntary Self Disclosure Agreement” (Form VDA-2) and agreed to pay the state of Delaware a dollar amount for your unclaimed property liability—don’t do it now. You are likely to get a better deal by waiting.

On June 28, 2016, the U.S. District Court in Wilmington issued its long-awaited decision in Temple-Inland, Inc. v. State Escheator of Delaware.[1] In a summary judgment decision, the court ruled against the state on several important matters, including the applicable statute of limitations and the “estimation” or “extrapolation” techniques employed to date to deal with incomplete records. Things will be changing in favor of the “holders” of abandoned property.

If you have identified yourself as a holder but not yet signed an agreement

Companies that responded to the state’s overtures and signed the “Disclosure and Notice of Intent to Voluntarily Comply” (Form VDA-1) have merely identified themselves as holders of property on which they might not have paid all they owe to the state of Delaware. They may have agreed to multiple extensions of the Form VDA-1, and they may have even begun supplying some data to the contract auditors employed by the state. But until they sign off on Form VDA-2, there is no deal. These holders should wait to see the new procedures that are likely to be implemented as a result of the court’s decision. Limitation periods will be shorter and estimation techniques will be friendlier.

If you have recently signed a voluntary disclosure agreement

The state has tried to close as many VDAs as possible in advance of this decision. If your company recently signed Form VDA-2 or some other settlement agreement, you may be stuck with a bad deal. These holders should carefully review their agreements to determine whether they are legally binding, whether they were signed by authorized persons on behalf of both the holder and the state and whether they cover all legal entities and all years. In light of the Temple-Inland decision, did the holder receive “consideration,” which is a requirement for any contract to be binding?

Even if your agreement looks solid, have you paid yet? Are there possible defences to any collection action the state may attempt?

What if you have done nothing?

Every legal entity domiciled in Delaware is potentially liable to the State Escheator as a holder of abandoned property. You may be fortunate to have not been in the first wave of entities contacted by the state. You should investigate your situation to avoid an unpleasant surprise.

  1. A copy of the decision (43 pages) can be downloaded at: [Back to reference]

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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