NJ Escheat Law in the context of Reverse Triangular Merger

Hypothetical transaction: The target company, the Company, survived the merger and remains as a New Jersey corporation, wholly owned by the Parent, a DE corporation, post-merger. The merger sub created by the Parent for the merger, a New Jersey corporation, merged with and into the Company upon the closing. Assume for the purpose of the analysis, a large percentage of the previous shareholders of the Company were domiciled in New Jersey and a significant number of them have not provided documentation required for the payment of merger consideration.

New Jersey Escheat Law (Title 46, Subtitle 6, Chapter 30B. Unclaimed Property)

These New Jersey statutes provide a procedure by which personal property that is presumed abandoned is transferred to the State of New Jersey as custodian for the absent owner. Property is subject to the custody of the State of New Jersey as unclaimed property if one of the conditions raising a presumption of abandonment (Articles 2 and 5 through 16 of the statutes) exists and one of the other statutorily required conditions (under Section 46:30B-10) is satisfied.

The statutes have the following defined terms that are relevant to an escheat law analysis:

"Administrator" means the Treasurer of the State of New Jersey;
"Apparent owner" means the person whose name appears on the records of the holder as the person entitled to property held, issued, or owing by the holder;
"Domicile" means the state of incorporation of a corporation and the state of the principal place of business of an unincorporated person; and
"Holder" means a person, wherever organized or domiciled, who is the original obligor indebted to another on an obligation (The Company and Parent are deemed to be the holders of the merger consideration under the New Jersey statutes and that the Parent is a Delaware corporation does not prevent the State of New Jersey from reaching out to the Parent for the enforcement of these statutes).

1. Presumption of abandonment
“Stock or other interest in a business association” is presumed abandoned three (3) years after the date of an unpresented instrument issued to pay interest or a dividend or other cash distribution (Article 10; Section 46:30B-31). This section of the NJ statutes is what is considered as the most applicable to the circumstance in terms of the category of the underlying abandoned property. The definition of “business association”  under the statutes includes a corporation.

2. Other condition to be satisfied to subject the property to the custody of the state (basically establishing the nexus to the State of New Jersey):
• The last known address, as shown on the records of the holder, of the apparent owner is in New Jersey (I assume that this should be the case for those previous shareholders of the Company that are known to us as domiciled in New Jersey);
• The records of the holder do not reflect the identity of the person entitled to the property and it is established that the last known address of the person entitled to the property is in New Jersey;
• The records of the holder do not reflect the last known address of the apparent owner, and it is established that (1) the last known address of the person entitled to the property is in New Jersey, or (2) the holder is a domiciliary or a government or governmental subdivision or agency of New Jersey and has not previously paid or delivered the property to the state of the last known address of the apparent owner or other person entitled to the property;
• The last known address, as shown on the records of the holder, of the apparent owner is in a state that does not provide by law for the escheat or custodial taking of the property or its escheat or unclaimed property law is not applicable to the property and the holder is a domiciliary or a government or governmental subdivision or agency of New Jersey;
• The last known address, as shown on the records of the holder, of the apparent owner is in a foreign nation and the holder is a domiciliary or a government or governmental subdivision or agency of New Jersey; or
• The transaction out of which the property arose occurred in New Jersey, and (1) the last known address of the apparent owner or other person entitled to the property is unknown, or (2) the last known address of the apparent owner or other person entitled to the property is in a state that does not provide by law for the escheat or custodial taking of the property or its escheat or unclaimed property law is not applicable to the property, and (3) the holder is a domiciliary of a state that does not provide by law for the escheat or custodial taking of the property or its escheat or unclaimed property law is not applicable to the property.

3. Reporting obligations of holder
A person holding property presumed abandoned and subject to custody as unclaimed property under the statutes must report to the administrator concerning the property (Section 46:30B-46). Forms and other information related to the reporting is found http://www.unclaimedproperty.nj.gov/reporting-info.shtml.

4. Notice to apparent owner (Section 46:30B-49)
Not more than 120 days nor less than 60 days before filing the report required by the statutes, the holder in possession of property presumed abandoned and subject to custody as unclaimed property must send by certified mail, and with return receipt requested, written notice to the apparent owner at the last known address informing the owner that the holder is in possession of property if:

(a) the holder has in its records an address for the apparent owner which the holder's records do not disclose to be inaccurate;
(b) the claim of the apparent owner is not barred by the statute of limitations; and
(c) the property has a value of $50.00 or more.

5. Delivery of property
At the time of the filing of the report, the holder must pay or deliver to the administrator all of the unclaimed property set forth in the report and all accretions thereon unless the owner established the right to receive such property before the property has been delivered or the presumption of abandonment is erroneous (Section 46:30B-57-58).

6. Relief from liabilities  
Upon the payment or delivery of property to the administrator, the State of New Jersey assumes custody and responsibility for the safekeeping of the property. A person who pays or delivers property to the administrator in good faith is relieved of all liability to the extent of the value of the property paid or delivered for any claim then existing or which thereafter may arise or be made in respect to the property (Section 46:30B-61).

Delaware Escheats Law (Title 12, Chapter 11 of the Delaware Code)

The Delaware Code broadly mandates that all property, the title to which has failed and the power of alienation suspended by reason of (a) the death of the owner thereof intestate, leaving no known heir-at-law, (b) the owner having disappeared or missing from the last known address continuously for 5 years or more, or (c) such property having been abandoned, must descend to the State of Delaware as an escheat.

Unlike the New Jersey statutes, which do not limit the definition of “holder” based upon the jurisdiction of organization/incorporation or domicile, the Delaware Code specifically provides that the “issuer of any intangible ownership interest in a corporation, whether or not represented by a stock certificate, which is registered on stock transfer or other like books of the issuer or its agent, shall be deemed a “holder” of such property (Section 1198(7) definition of “holder”).”

Since the obligations to (a) report with respect to the abandoned property and (b) pay or deliver such property under the Delaware Code fall on the “holder” of the property, it does not appear that the Delaware law applies to our circumstance where the issuer corporation is a New Jersey corporation, which is not considered a “holder” under the Delaware Code.

Conclusion: Based upon the interpretation of the applicable sections of the statutes above, after three (3) years from the date the Parent or Company contacted, for disbursement of the merger consideration, the previous shareholders of the Company known to the Company or Parent as domiciled in New Jersey, who have failed to submit the required documentation, the presumption of abandonment arises, which obligates the Company/Parent to (a) report to the Treasurer of the State of New Jersey concerning the property, (b) send written notice to the apparent owner at the last known address informing the owner that the Company/Parent is in possession of property, and (c) deliver to the Treasurer of the State of New Jersey all of the unclaimed property set forth in the report (the pro rata merger consideration for each such shareholder) and all accretions thereon.