In Petróleos de Venezuela SA v. PDV Holding, 2023-0778, the Chancery Court ordered PDV Holding (PDVH), a Delaware corporation and the direct US parent of Citgo Petroleum Corp., to issue a replacement stock certificate conditioned upon Petróleos de Venezuela SA (PDVSA) posting an unsecured bond.
The issue before the court concerned reissuance of a lost or destroyed stock certificate covering all 1,000 shares of PDVH and whether such reissuance should require a significant cash bond as sought by PDVH to account for potential legal risk.
PDVSA, the state-owned oil company of the Bolivarian Republic of Venezuela (Venezuela), is the parent of PDVH and thus the ultimate owner of Citgo. PDVH and PDVSA have a fraught relationship; reflecting long-running political complexities, PDVH is controlled by Venezuela’s opposition while PDVSA is in the hands of the Caracas-based regime. PDVSA sought the stock certificate reissuance to facilitate an auction of Citgo, which it was pursuing to help satisfy a series of arbitration awards and certain other liabilities. Indeed, as the court explained, the matter “is part of a much larger multi-jurisdictional dispute” between nonparty Crystallex International Corporation and Venezuela in which Crystallex seeks to collect a $1.2 billion arbitration award by executing on PDVSA’s US-based assets.
PDVSA, the registered owner of all 1,000 shares of PDVH’s stock, was only in possession of a photocopied stock certificate and not the original. Under Section 168 of the Delaware General Corporation Law, the court may require a Delaware corporation to issue a new stock certificate if the owner is able to satisfy the court that the original certificate was lost, stolen, or destroyed, which PDVSA alleged and PDVH did not dispute. While there appeared to be no dispute regarding PDVSA’s ownership of PDVH, PDVH sought a cash bond of $1 billion to $2 billion from PDVSA “to protect against liability for issuing a new stock certificate, arguing that there is a non-zero chance that the original certificate may have been transferred or pledged and may subject PDVH to liability under Section 8-405 of the Uniform Commercial Code.”
The court has discretion in setting the amount of the bond, as PDVH conceded. In assessing the totality of the circumstances, the chancery court found that a $10,000 unsecured bond was sufficient due to “the lack of a dispute over ownership, the presence of OFAC [Office of Foreign Assets Control] sanctions, and PDVSA’s various judicial admissions that it has not pledged or transferred the shares.”
In other words, notwithstanding the myriad legal complexities implicated by Venezuela’s legal circumstances, the Chancery Court found the legal risks involved with reissuing PDVSA’s stock certificate to be sufficiently limited as to warrant a modest bond, ultimately facilitating PDVSA’s contemplated asset dispositions.