Keane's Unclaimed Property Blog

Changes to North Carolina Due Diligence Requirements

Changes to North Carolina Due Diligence RequirementsNorth Carolina due diligence requirements have changed as a result of the passing of House Bill 294 on July 20, 2017.

Though the bill was effective immediately, the provisions relating to due diligence go into effect on October 1, 2017 and will apply to all property presumed abandoned on or after that date. Therefore, these changes do not affect the due diligence process for the upcoming fall 2017 escheat reporting cycle

North Carolina Due Diligence Requirements for Securities

The minimum threshold value for property requiring a due diligence notice has been reduced to $25 for holders of securities, stock, or other equity interests. The threshold value for all other property types remains at $50.

The new law also includes a requirement that is of particular importance to owners of securities and securities-related property. In addition to the standard requirements for notice, such as providing holder contact information and a description of the property, North Carolina due diligence letters must also include a statement that “once the property is placed in the custody of the Treasurer, all interest, dividends, income, and gains earned on the property will remain with the Treasurer, even if the owner subsequently reclaims the property from the Treasurer.”

The Role of the State as Custodian

This provision could become a hot topic for debate, as owners of unclaimed property may contend that they have the right to any benefits or proceeds from the property, and not the state.

In a recent case brought before the Delaware Court of Chancery[1], the rightful owners of unclaimed property have argued that Delaware did not have the right to liquidate escheated shares without their consent and proper notice.

Additionally, the bill repeals Section 2 of Session Law 2015-68, which had repealed a provision of law allowing the Treasurer to destroy or otherwise dispose of any property received if the property has or had no substantial commercial value.

Duty of Care

The new law requires holders to exercise reasonable care in ascertaining that the due diligence notices are mailed to an apparent owner’s correct address.

Penalty for Non-Compliance

Holders who willfully fail to comply with the new North Carolina due diligence requirements will face, in addition to interest, a civil penalty of $1,000 for each day the duty or requirement is not performed, up to a maximum of $25,000, plus 25% of the value of the property in question.

Keane will be sure to provide the latest updates on North Carolina due diligence requirements and updates for each state on our Unclaimed Property Blog. Please check back from time to time for additional news on pending legislation regarding this topic or to gain access to our other Unclaimed Property Resources.

You can also subscribe to our Unclaimed Property Compliance Portal to stay up to date on all legislation along with access to various escheat compliance resources.

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[1] JLI Invest S.A. et al v. Cook et al., Case No. 11274

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