Liquidators often overlook assets, owned by debtors, which are held by state unclaimed property agencies. Sometimes the value of those overlooked assets is substantial.
Several years ago, a debtor reopened its S.D.N.Y. Chapter 11 liquidation case, which had been closed for over three years, to recover over $1 million in assets held in debtor’s name by the New York State abandoned property fund. In another case, it was $300,000 of unclaimed funds that were discovered by bankruptcy counsel after the case was closed.
These are only two of many cases I’m know of in which Chapter 11 liquidators have failed to collect their unclaimed assets.
Of course, not every liquidation has unclaimed assets. It depends on the business of the debtor. For instance, financial institutions very often have many items of unclaimed assets. Entertainment and media companies, although they typically have fewer items, do have some large royalty items that go astray.
How Do These Assets Get To The Various States?
All 50 states have enacted some version of the Uniform Unclaimed Property Act which requires businesses which cannot locate creditors, shareholders, or others they owe money or other assets to, to deliver or “escheat” that property to the state of the owner’s last known address. The state then holds that property in its unclaimed property fund until the owner asserts a claim to it. These funds are a significant source of revenue for the states which typically can use the funds until the owner shows up and asserts a claim. New York State, for instance, holds $12 billion in unclaimed assets. California has over $6 billion. These funds increase every year.
Although these assets are often remote and difficult to recover, liquidators should be aware of them and, where appropriate, consider selling them along with other remnant assets of the debtor. Often these sales are the last transaction a liquidator makes before closing the case and they include all the residual assets known and unknown uncollected by the debtor.