Monday, January 24, 2011

2011 Legislature: Lost Share Certificates

The following article was written by David Hartvigsen, a partner at Smith Hartvigsen, PLLC, for the Water & The Law newsletter that our firm publishes on a quarterly basis. If you would like to receive an email version of the newsletter, please click here to join our mailing list.

Senate Bill 25 (S.B. 25): Share Certificates in Water Companies
Certificates representing shares of stock in water companies often become lost, destroyed, stolen, or can't be located for any number of reasons. This most typically happens when property and interests in water shares are passed from one generation to another upon the death of the parent or grandparent. Most water companies use share certificates as the sole documentary evidence of ownership of the shares. Therefore, when certificates are lost, a serious problem develops concerning who is the rightful owner of the shares. About the only solution available in the past to water companies was to require the person claiming ownership to provide a bond that could be used to reimburse the company for potential liability under future claims by others purporting to be the true owners and alleging that the company has given their shares to someone else. The problem has become worse over time because the value of water stock, and therefore the cost of such bonds, has skyrocketed and bond companies are no longer willing to issue bonds that protect more than a few years into the future.

This bill, sponsored by Sen. Ralph Okerlund, addresses this problem by setting up a new "safe harbor" for water companies and shareholders to use. It provides for published notice to the public and for direct notice to those known to have a possible interest in the shares covered by a lost certificate, such as those who have paid assessments on those shares within the last five years. In general, if no objections are filed with the company within a 60-day period, the company may issue a replacement certificate and both the company and the holder of the new certificate are protected against future claims of ownership of those shares. If an objection is received, the company can either evaluate the claims and take action as it deems appropriate or tell the parties to go have a court settle the dispute. There are more specific requirements and procedures that must be followed, but this is the basic concept. The bill is supported by Water Coalition, the Water Task Force, and the Interim Natural Resources Committee.

A full copy of the bill is available by clicking here.

(For an update on this bill, click here.)

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