Delaware’s Unclaimed Property Program Roars Back, Hundreds of New Reviews and Audits Coming in 2021

During the pandemic, Delaware has provided extensions and made accommodations to companies receiving invitations to enroll in the Secretary of State’s voluntary disclosure agreement (“VDA”) program, which allows companies to avoid audit by performing their own internal review of liability, subject to final review by the staff and contractors of the Delaware Secretary of State.  As many American businesses continue to function remotely, Delaware – like other states – has concluded that VDAs and unclaimed property audits initiated by Delaware can and should continue as well. Therefore, it is accelerating its scrutiny of Delaware formed companies.

Hundreds of New Audits

The State recently made public its plan to send letters to Delaware companies “inviting” them to enter into the Delaware VDA program which, if not responded to within 60 days will trigger an audit by the Delaware Department of Finance.  Delaware plans to send out these new letters on the following dates:

• February 19, 2021
• May 14, 2021
• August 20, 2021

Each group of Delaware letters will go to approximately 100 companies. 

These VDA “invitation” letters are usually sent to senior executives of the company, often a chief executive officer, chief financial officer, or similarly titled individual. In some instances, these letters are missed by C-suite executives which is significant because failure to respond and enter the Delaware VDA program will trigger an audit. These audits can be lengthy, often lasting six or more years and imposing non-waivable mandatory interest. Once a company receives an audit notice from Delaware it will not be allowed to move into the often less onerous, self-managed VDA program.

Responding to VDA Invitation – Making an Informed Decision

Based on recent history, about 50% of the companies invited into the VDA program will enter the program and about 50% will not and will receive audit notices.  Advantages of the VDA program include greater control of the review; avoidance of aggressive contract auditors who often engage in a much more detailed, time consuming process; and avoidance of other states being added to an audit with Delaware’s acquiescence.

Companies can benefit from the advice of experienced counsel and an assessment of the size, type of business and reporting history of the company. Whether a company finds itself in the VDA program or in an audit, knowing the challenges and processes involved in either, including the most cost-effective use of consultants and internal resources and the management of state agents and scope of review as well as the assertion of legal defenses (in either context) is important.

How Morris Nichols Can Assist

Morris Nichols has more than 30 years of experience in representing Fortune 500 companies and many others in Delaware and multi-state VDAs and audits. 

If your company is “invited” into the VDA program or has already entered it, Morris Nichols can assist you in navigating that process and negotiating with the Delaware Secretary of State.

Copyright © Morris, Nichols, Arsht & Tunnell LLP. These materials have been prepared solely for informational and educational purposes, do not create an attorney-client relationship with the author(s) or Morris, Nichols, Arsht & Tunnell LLP, and should not be used as a substitute for legal counseling in specific situations. These materials reflect only the personal views of the author(s) and are not necessarily the views of Morris, Nichols, Arsht & Tunnell LLP or its clients.