News Column

Unclaimed Dividends - Any Hope for Shareholders?

June 18, 2014

Eromosele Abiodun

The Institute of Capital Market Registrars announced last week that the value of unclaimed dividends stands at N50.94 billion, a drop from what obtained years back. However, with stakeholders' continued bickering over the planned Unclaimed Dividends Trust Fund, the faith of investors still hangs in the balance.

Last week, the Institute of Capital Market Registrars (ICMR) revealed that the value of unclaimed dividends reached N50.94 billion as at December 31, 2013.

The President/Chairman of Council of ICMR, Mr. Bayo Olugbemi, who made the disclosure in Lagos, said the figure represented 5.05 per cent of the total dividends declared for the past 10 years. He said the current level of unclaimed dividends was a significant improvement compared with past years.

Olugbemi said efforts made by regulators and registrars had helped to reduce the level of unclaimed dividends in the nation's capital market. He said the value of dividends currently being declared by companies were huge compared to 10 years ago.

Olugbemi, who is also the Managing Director, First Registrars Limited, said the efforts of regulators and registrars had yielded significant results in reducing the level of unclaimed dividends in the market.

"Years back the percentage of unclaimed dividends was around 24 per cent. But we have reduced it to below 20 per cent, 10 per cent and 5.05 per cent in December 2013," he said.

He promised that stakeholders in capital market would do more to further reduce the level of unclaimed dividends.

The chairman said some of the big banks in the country which paid dividends below N10 billion in past years, paid over N54 billion dividends in 2013. He said in 2013 Dangote Cement declared dividend of about N120 billion.

Olugbemi said registrars would not relent in their efforts to make the capital market more attractive to investors.

Unclaimed dividends in Nigeria Unclaimed dividends have increasingly constituted a serious problem in the Nigerian capital market on the basis of their staggering and generally increasing amount involved in the last few years.

The continued retention of such dividends by public companies most times distorts their true financial position thereby misleading investors and government.

Seven years ago, the Securities and Exchange Commission (SEC) under the leadership of Musa Al-Faki, at a meeting with stakeholders in the capital market, adopted short and long term measures to reduce or eliminate the incidence of unclaimed dividends by way of improving share-ownership documentation.

The commission directed that share application forms in respect of public offering of securities shall include information on next of kin and bank account number, amongst other recommendations.

But the recommendation for the establishment of the Unclaimed Dividend Trust Fund (UDTF), generated more controversy than what it was intended for.

The fund, according to the SEC's proposal, was to be managed by an independent fund manager for the purpose of ensuring that dividends are no longer status-barred after 12 years and that investors have access to their dividend whenever they appear to claim them.

Al-Faki had on receiving the report of the national committee on unclaimed dividends, visited Olusegun Obasanjo, who was then the President of the Nigeria. It was during that visit that the former president agreed in principle to the formation of UDTF.

Membership of the committee was to comprise representative of SEC, Ministry of Justice, Ministry of Finance and representatives of Shareholders Associations.

A bill to give the fund a legal backing was then drafted and sent to the National Assembly and a public hearing was arranged to ensure the input of the general public. But a combined efforts by shareholders associations and some stakeholders ensured the bill was not passed.

A new twist Four years after the issue had been laid to rest, a similar bill with a wider scope found its way into the House of Representatives and passed second reading.

The fresh bill for an Act to establish the Unclaimed Dividends and Abandoned Property Trust Fund, was aimed at identifying and maintaining database of unclaimed dividends, abandoned property and investment in banks, financial institutions and public companies in Nigeria.

As usual, stock market operators and stakeholders in the Nigerian capital market opposed the bill and nothing has been heard of it since then. Stakeholders who spoke to THISDAY at that time said corporate Nigerian must rise to ensure that the bill do not see the light of the day, stressing that passing the bill would give government agencies the opportunity to dip hands into private investors funds.

A way out? The Registrar/Chief Executive, ICMR, Dr. David Ogogo, believed improvement in infrastructure coupled with adequate public awareness would make unclaimed dividends a thing of the past, adding that the use of electronic payments platforms will bring about the transparency required in the payment of dividends.

According to Ogogo, "the creation of undue bureaucracy through the establishment of a board and full secretariat to be occupied mostly by government appointees and employees without providing adequately for the cost of the establishment of the fund is extremely worrisome to shareholders.

If that bill is passed, unclaimed dividends are no longer safe as all expenditures, which include but not limited to staff salaries, pensions, travel expenses, among others would defrayed from the funds.

"This will certainly threaten the safety of the fund if dividend monies of shareholders are used for this purpose. It does not amount to protecting the investors, a reason, which the establishment of the fund sees to achieve," he said.

Ogogo added that the level of investors' confidence seen in the market is a reflection of the transparency of all activities and level of honesty displayed by operators.

Reasons for unclaimed dividends The major causes of unclaimed dividends have been identified to include: Frequent changes in postal addresses and non-notification of such changes to the registrar by members, inefficiency of the registrar to respond adequately to investors enquiries because of their workload and uncomputerised services. Others are death of an investor, defective postal system, insistence by most banks on using only current accounts for payment of dividends which most small investors do not have.

Who owns unclaimed dividends Unclaimed dividends belong to the investors. The company only holds it in trust which has to be safeguarded in the interest of the owners. Section 382 of the Companies and Allied matters Act 1990 allows a company to invest any unclaimed dividends for its own benefit at the expiration of three month notice to its members; no interest shall accrue on the dividends against the company.

However, after 12 years the unclaimed dividends become statute barred as stipulated by the CAMA and will be taken over by the company.

Shareholders' position Speaking on the development, National coordinator, Independent Shareholders Association of Nigeria (ISAN), Mr. Sunny Nwosu, said the move is a ploy by some people in high places to take what do not belong to them.

"They are not doing anything in our interest, I call on all shareholders, corporate Nigeria and the general public to go to that public hearing and shut down that bill. We did that with the one proposed by former director general of the Securities and Exchange Commission (SEC), Al-Faki.

"If this bill is allowed to see the light of the day, investors will no longer have confidence in the market and so will look elsewhere to invest their monies. This will be so because the bill is all about taking and spending the hard earned benefit of shareholders. The impact on the capital market will be negative," he said.

Nwosu who said the bill will hit the brick wall, noted that if passed, it would amount to a case of 'robbing Peter to pay Paul', as shareholders may lose the monies within a shorter period of time than 12 years, which was the length of time allowed before the dividend becomes statute barred.

"What I am saying is that companies must get up to their responsibility and educate the law makers to understand that there is a law guiding this issue and that they cannot take what does not belong to them while the shareholders will be doing their own bit about that." he said.

On his part, National Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, said the feeling of shareholders on the proposed establishment of the trust fund was a total disappointment in the originators of such a bill as they did not mean well for capital market.

He noted that shareholders form the fulcrum over which all other activities in the capital market revolve and so they must respect their feelings to help move the market forward.

Okezie said if adequate investigation is carried out, it would be discovered that those behind the bill do not know anything about capital market operations.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: AllAfrica

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