Escrow positions are placeholder shares that may be issued to shareholders in the event of a corporate action such as a reorganization or bankruptcy. If you are issued escrow shares, it means that you may receive further payments from the corporate action in the future, but future payments are not guaranteed or necessarily expected.
For example, say you own 50 shares of Company XYZ, and XYZ declares bankruptcy. Bankruptcy cases can sometimes take a long time to settle in the courts, so XYZ may issue you 50 escrow shares in the meantime. These are placeholders. If money becomes available to shareholders out of the bankruptcy proceedings, then because you hold XYZ escrow shares, you may be entitled to some of it. But, if no money is left, then your escrow shares will be worthless.
How Shares Are Issued
Each company can choose whether to issue escrow shares and how to issue them. Escrow shares are typically issued on a one-for-one basis (as in the example above, you held 50 shares, so you were issued 50 escrow shares), but this is not always the case.
Companies might decide, for example, only to issue escrow shares to shareholders with a certain level of investment (a certain number of shares or percent ownership). Or, they might issue escrow shares that are contingent upon their next big product launching. There is no set formula for whether or how escrow shares will be issued, so it's important to check the company's website and any shareholder materials they send out during a corporate action to find out the terms of any escrow shares being issued.
What Can I Do with Escrow Shares?
No action is required of shareholders when they receive escrow shares. Escrow shares cannot be traded and have no market value, so typically, investors will just allow them to sit in their account untouched until money is paid out or the shares are declared worthless.
If you are trying to close your account while you hold escrow shares, you can sell the shares to Scottrade in the Worthless Trade process. If you choose to do this, you are selling Scottrade the rights to any future payments on these shares. Escrow shares may not be transferable to other accounts.
Statute of Limitations
There is no statute of limitations on escrow shares. Basically, shareholders hold onto them until the situation that precipitated their issuance is resolved. This could be a final court decision on a bankruptcy case, the conclusion of a reorganization, or the final issuance of a dividend, among other things. Sometimes, these situations will take years to resolve, while others may be decided in a matter of weeks or months. In the meantime, there is no downside to keeping the shares in your account because they are simply serving as placeholders for potential future payment.
Finding More Information
Because every issuance of escrow shares is unique and is decided by the issuing company, the company itself will be your best source for information. Companies going through a major corporate action may post information for shareholders on their website, and they will sometimes mail out key shareholder information, particularly after a court decision.