What to do if all students lack prerequisites?

I'm going to take the crummy-feeling position of upholding the legitimacy of the course (possibly) at the expense of the students' education.

I presume there is a department-approved syllabus on what topics should be covered in this University course, right? Those topics are the topics that students who pass the course are expected to have understood by the end of it. Assuming I accurately understand your position in this, unfortunately you are more than just an educator in this situation, but you are also a gatekeeper as you have to grade them and decide if they pass. If it shows on their transcript that a student passed this course, it means that you've signed off on the fact that the student has a sufficient understanding of the material listed in the University's (or Math Department's) description of the course.

So teach the material that's usually taught, and examine them on that material. You can still teach it to them softly with the understanding that they're lacking some basic prerequisite knowledge (go slowly, write out more details that you would normally think are necessary, etc). But at the end of the day, it's got to be a calculus course. Heck, maybe they'll surprise you at how much calculus they've learned by the end of the course. :)

All of this of course is pending any further word from the dean and chair.