Recently, a client came to us seeking advice on how to handle a large volume of uncashed distribution checks the client issued to its members over the past decade. Although not widely known, New York maintains an entire section of statutes, New York Abandoned Property Law, which addresses this very issue.

Under New York Abandoned Property Law, uncashed distributions become abandoned property after 3 years. See New York Abandoned Property Law § 501. New York businesses are not permitted to retain abandoned property, including uncashed distribution funds. See New York Abandoned Property Law § 502. Instead, the issuing business is required to remit the abandoned uncashed distribution funds to the State Comptroller. See id.

If a business fails to remit abandoned uncashed distribution funds to the State Comptroller, the business exposes itself to various legal consequences. First, it faces financial liability, and that financial liability is not simply the amount of the uncashed distribution funds. The State Comptroller may impose a daily $100 fine and hold the business liable for interest on the abandoned funds at a rate of 10% per year. See New York Abandoned Property Law § 1412.

 Second, New York law enables the State Comptroller to commence litigation to recover the amount of the abandoned funds, including the aforementioned financial penalties. See id. In such litigation, there is a presumption that the business is liable. See id. And, notably, there is no statute-of-limitations defense to litigation by the State Comptroller. See New York Abandoned Property Law § 1400. As such, the State Comptroller may seek property that became abandoned over a decade ago. See e.g., Presley v. Cty. of Nassau, 188 A.D.2d 594, 595 (2d Dep’t 1992) (holding that the State Comptroller was entitled to funds which became abandoned 15 years prior).

As noted, liability for failing to remit abandoned property to the State Comptroller may result in extensive financial liability. Imagine a scenario in which a business has failed to remit $100,000 of abandoned property to the State Comptroller for 10 years. The business would be liable for the $100,000 principal, $365,000 in daily fines (10 years times 365 days times $100), and $159,374 in interest (assuming compounding).

That being said, a non-compliant business may be able to avoid incurring such a hefty financial penalty by participating in the State Comptroller’s “Voluntary Compliance Program,” which, generally, is a self-disclosure program that requires the participant to undergo a financial audit and transfer to the State Comptroller all abandoned funds.

For assistance with navigating the program in order to receive its benefits, we recommend seeking the advice of legal counsel.