Unclaimed Dividends: Investors Urge Reform Of Capital Market

UNCLAIMED dividends remains a major discourse in the Nigerian Capital Market. It generates comments from all stakeholders, including regulators.

As of December 2013, the amount of unclaimed dividends was reportedly valued at between N60 billion and N80 billion, a figure that continues to grow each financial year .

In 1999, it was around N2 billion, and it grew to N8billion in 2000, N18 billion in 2008, and now the figure is between N60 and N80 billion.

Of the N80 billion, the four companies with large holdings of unclaimed dividends are Nigerian Breweries’ holding, Bank PHB, former Intercontinental Bank and Diamond Bank, according to records at the Securities and Exchange Commission (SEC) Nigerian Breweries’ total unclaimed dividends was put at N4.42 billion, followed by Bank PHB’s N4.14 billion.

The third company on the list is Intercontinental Bank with N3.4 billion, and Diamond Bank’s N3.34 billion.   Law Union led the list of companies with minimal of unclaimed dividends as at the period under review. Law Union’s unclaimed dividend is valued at N6.6 million; followed by Linkage, N5.87 million; Oasis, N3.33 million, and Costain, N159.2 million since 1999.

A dividend is that part of a company’s profit that is distributed to shareholders in the proportion of their shareholding. If recommended dividend payout by the directors is approved at the yearly general meeting of the company, it is paid to shareholders within a definite period from the date of the meeting.

Dividends, however, become unclaimed if not collected three months after the next general meeting of a company. It also bothers on capital market registrars’ functions, processes, as well as rules guiding their operations. Registrars are expected to compile a list of such dividend is expected to be added to a company’s annual report at the end of a financial calendar.

Therefore unclaimed dividends simply evolve out of a registrar’s normal activity and can be referred to as dividends that have been approved at the yearly general meeting and yet to be claimed due to non-presentation of dividend warrants or non-availability of shareholder e-mandate bank details.

Financial experts and analysts who spoke to The Guardian, on the matter, say dividends become an issue after the government of Yakubu Gowon passed the first Nigerian Enterprises Promotion Decree of 1972, popularly known as indigenization decree, which gave Nigerians the right to the ownership of some enterprises, and greater participation than hitherto in the equity participation of companies. Unclaimed dividends have both remote and immediate causes.

These include: wrong or incomplete mailing addresses of shareholders kept by the registrars; change of mailing address or relocation without notifying registrars; lack of awareness by some investors who do not understand the intricacies of investment in shares; as well as small dividends that are abandoned for not being worth the effort of collection.

Others are: Inefficiency and corruption in the postal system; inefficiency of some registrars; and lack of indication of next of kin by shareholders; multiple application of shareholders during the privatization process and their inability to maintain signatures or recollect the several addresses used; and deliberate act to deny investors their benefit through various schemes.

The managing director of the National Association of Securities Dealers [NASD], Bola Ajomale, who spoke to The Guardian suggested that all unclaimed dividends should be warehoused and kept an in escrow account for the investors.

He also suggested recommended that strong e-dividend policies should be put in place to stop the figure from growing.

Besides, he said Investors should be better educated on electronic dividend management, in the same way bank’s customers were educated during e -banking electronic dividends payment.

Ajomale said dematerialisation of shares and an efficient postal system in the country could also help in solving the problem.   Some shareholder groups have urged the [SEC) to address the rising figure of unclaimed dividends in 2015.

Boniface Okezie, President of Progressive Shareholders’ Association of Nigeria (PSAN), said the new SEC Director-General should seek the amendment of unclaimed dividend law in the country.

He urged the commission to initiate a bill aimed at reviewing the 12 years statute-barred placed on unclaimed dividends in the market.

He said that stock of unclaimed dividends would continue to increase unless Section 383 of Companies and Allied Matters Act (CAMA) was amended. According to him, the issue of unclaimed dividends would be resolved once shareholders were allowed to claim their dividends at any given time.

Adebayo Adeleke, Secretary of Independent Shareholders Association of Nigeria (ISAN), said that dividends, once declared, belonged to shareholders and should not be ploughed back into the companies.

According to him, investors should be encouraged through enlightenment campaign to embrace e-dividend system, while dividend warrants should be accepted in either savings or current accounts by banks.

James Osoka, another stakeholder called for an overhaul of the nation’s postal system to make it more efficient and dynamic. He said that investors should inform their registrars whenever they changed address.

The registrar, First Registrars Ltd, Bayo Olugbemi, who responded to enquiries by The Guardian, said unclaimed s in the last 10 years was just 10 percent of the declared amount, adding that returning the dividends to the issuing companies could compound the problem.

He proffered solution to the problem of unclaimed dividend saying, the public should be well informed to embrace the policy of e-divided payment. “First, let me correct the impression of rise in unclaimed dividend. We should not be looking at the quantum in isolation of percentage of unpaid compared with amount declared over the years.

“As at today, the percentage outstanding across all registrars is about five percent of amount declared in the past ten years or so.

There should be more enlightenment campaign for investors, especially in the area of e-dividend compliant. Registrars and companies should collaborate to get the beneficiaries informed through production of unclaimed dividend reports.

Returning the funds to the companies will not solve the problems, but rather compound it   In response to this problem, a number of initiatives have been implemented in an attempt to find a long-term solution to the issue.

The Unclaimed Dividends Bill, which was introduced to the National Assembly and later resurfaced as the Unclaimed Dividend and Abandoned Property Fund Bill, would classify unclaimed dividends as abandoned property and devolve title of such dividends to the government.

However, shareholder groups have challenged this proposition on the grounds that unclaimed dividends are not the same as abandoned property. Furthermore, they argue that the government must not be permitted to reap what it has not sown.

The establishment of the Central Securities Clearing System has also yielded significant gains by dematerialising and automating both the process through which trades are executed and housed and the process for crediting dividends to shareholders. ‘dematerialisation’ refers to the process whereby physical share certificates are replaced with electronic records.

Furthermore, the e-dividend policy introduced in 2008 directs all companies to pay dividends electronically in place of issuing dividend warrants.

This process has gained attention, but mandatory implementation has been postponed as shareholders have called for action to tackle the root cause of the problem.

However, other groups have insisted that unless the policy is made mandatory and a deadline is set for its implementation, it may take a while for the policy to resolve the problem.

The regulator has also recommended full computerisation of registrars’ operations and a number of registrars have proffered solutions (for example, issuing pre-paid dividend cards to enable shareholders to draw on their dividends directly).

This is expected to make significant progress in dealing with the problem, as shareholders will have direct access to draw dividends.   In addition, dividend warrants are classified in the same category as ordinary cheques, which have a lifespan of six months, after which they must be revalidated.

Shareholder groups have also called on the Central Bank of Nigeria to grant a waiver in respect of dividend warrants by classifying them as special cheques without a lifespan.

In April 2013, the Securities and Exchange Commission Nigeria (SEC) issued a directive that all shareholders of public companies forward to their registrars their bank account details on or before June 3 2013, or forfeit any dividends to be declared and desist from issuing dividend warrants. This directive was the regulator’s approach to stem the increasing pool of unclaimed dividends.

  The Unclaimed Dividends Bill, which was introduced to the National Assembly and later resurfaced as the Unclaimed Dividend and Abandoned Property Fund Bill, would classify unclaimed dividends as abandoned property and devolve title of such dividends to the government. However, shareholder groups have challenged this proposition on the grounds that unclaimed dividends are not the same as abandoned property. Furthermore, they argue that the government must not be permitted to reap what it has not sow

The directive met with stiff opposition from various shareholder groups, on the grounds that the SEC has no power to deny shareholders their rightful entitlement to dividends, and that shareholder associations were not consulted before such directive was issued.

The SEC later suspended implementation of the directive.   Shareholder activism has also prompted the SEC to issue a directive for the inclusion of information relating to unclaimed dividends in the annual reports of quoted companies.

This has increased the level of transparency, although it has had little impact on the problem.

Although the limitation exists, some companies have magnanimously allowed shareholders to claim dividends even after the limitation period has lapsed. Unfortunately, however, this is not applicable across the board.

Despite calls by shareholder groups to expunge Section 385 of the Companies and Allied Matters Act, this would not definitively resolve the issue of unclaimed dividends.

Of all efforts made to date to resolve the issue of unclaimed dividends, the most potent is the SEC’s effort to have public company dividends paid into shareholders’ accounts.

However, shareholders, who protested that the SEC did not consult them before issuing the directive, thwarted this effort.    It is recommended that every investor be required to hold a savings account and that dividends be made payable to such accounts.

Full implementation of this recommendation, experts say could resolve the challenges arising from the issuance of dividends warrants, postal problems and the lifespan of dividends.

Although the SEC Rules and Regulations prescribe a 20-day period in which dividend warrants should be dispatched to shareholders after dividends have been declared, it is also recommended that, once declared, dividends should be paid directly into shareholders’ accounts.

Further, the SEC Rules and Regulations should also specify a timeframe within which such payment is to be made. This will check allegations of insincerity and lack of transparency on the part of company directors.

Finally, registrars should step up efforts to overhaul their systems and introduce pre-paid dividend cards allowing shareholders to draw dividends directly from automated teller machines.