Last week, Broc Romanek’s Mentor Blog addressed the question of what to do about outstanding stock certificates following a reverse stock split.  Today, I’ll weigh in with a California perspective.

Section 422 of the California Corporations Code invests a corporation’s board of directors the authority to order any holders of outstanding share certificates to surrender and exchange them for new certificates within a reasonable time.  Section 422 applies when the articles of incorporation are amended in any way that affects the statements on the certificates for outstanding shares or it becomes desirable “for any reason” in the discretion of the board to cancel and replace outstanding certificates.

Lest the board’s order be endangered of falling “still born”. Section 422 empowers the board to order that a holder is not entitled to vote or to receive dividends or exercise any of the other rights of shareholders until the holder has complied with the order.  The order, however, may only operate to suspend such rights only after notice and until compliance.  The duty of surrender of any outstanding certificates may also be enforced by civil action.  Nevada has enacted a very similar statute,  NRS 78.250.

The reference to falling “still born” is to Andrew Jackson’s possibly apocryphal response to Justice John Marshall’s decision in Worcester v. Georgia, 31 U.S. 515 (1832) reversing the superior court of the State of Georgia.  President Jackson, according to newspaperman Horace Greeley, retorted “Well, John Marshall has made his decision, now let him enforce it.”  Old Hickory’s documented response was a great deal more prolix: “The decision of the Supreme Court has fell still born, and they find that it cannot coerce Georgia to yield to its mandate.”  Jon Meacham, American Lion 204 (2008).