Matter of Silberkraus , 250 N.Y. 242 ( 1929 )

I concur in Judge O'BRIEN'S opinion. The new certificate entirely eliminates from the corporate structure the class of second preferred stock. It substitutes for both first and second preferred stock a new class of preferred stock. So long as the new preferred stock remains outstanding, it possesses the same preferential right to payment at par upon the distribution of the assets, which inhered in the retired second preferred stock, but other provisions in the new preferred stock completely alter its position in the corporate structure. The stock may be retired at 110, and a new preferential right to dividends at the rate of seven per cent is coupled with a restriction that the stock is entitled to no other dividends. In effect, the new stock cannot share in increase of corporate earnings or capital value.

The statute in terms provides a remedy where a new certificate alters the preferential rights of any outstanding shares. It has no application where the preferential rights of one class of outstanding stock over another class are left unchanged, though both classes of outstanding stock are made subject to new preferential rights of classes of stock to be issued thereafter. The statute was not intended to hamper a corporation in obtaining additional capital through the issue of new securities with superior preferential rights. So we held in Matter of Dresser (247 N.Y. 553). In that case the new certificate expressly provided that the preferential rights of the outstanding shares remained unchanged except as they became subject to the superior preferential rights of the new stock.

There is nothing in the statute that suggests that it does not apply where the new certificate completely alters the relative rights of different classes of outstanding stock. Here the new certificate has created a new class of preferred stock in place of a class of outstanding stock, with new preferential rights and new restrictions upon the rights which previously inhered in the stock of the eliminated class. Certainly the preferential rights of the new class of stock are not the same as the preferential rights of the eliminated class. Though the old preferential right has been retained, it becomes merely a part of a broader scheme of preferential rights as well as disabilities.

A decision that, though a new certificate completely changes the corporate structure, eliminates one class of preferred stock and substitutes a new preferred stock in its place, with new preferential rights and new disabilities, there has been no "alteration of the preferential rights of any outstanding stock," ignores, in my opinion, the language of the statute and defeats its purpose.