7 August 2006

Ghana: SEC to Legislate Laws to Oversee Unclaimed Dividends

Inquires made by the Business Chronicle in the capital market indicates that some listed companies, brokerage firms and securities market operators are holding over ¢100 billion of monies from declared but unclaimed dividends belonging to unidentified shareholders since the inception of the Ghana Stock Exchange (GSE).

An unclaimed dividend is a dividend declared by the directors of a company that has not yet been paid or claimed.

By law, dividends become debt of a company once they are declared and must be paid. Unclaimed dividends do not belong to companies that declare them or stock brokers but to investors or shareholders.

It is therefore wrong for companies and some securities market operators such as stock brokers to invest the dividends and reap huge interests on the dividend money without considering the shareholder.

It is not only the capital market that has unclaimed issues to deal with but the insurance sector, in the case of unclaimed premiums and the banking industry in the form of redundant accounts as well as the social security sector in the form of unclaimed pensions are to be attended to. It is also believed that huge sums of unclaimed monies are stuck in these sectors.

According to the Securities and Exchange Commission (SEC) in a circular issued to the capital market on a draft market guidance notes on unpaid/unclaimed dividend on July 31, 2006 and signed by Dr. Nii Kwaku Sowa, Ag. Director General of SEC, the Limitation Decree 1972 (NRCD 54), "shareholders are in principle and legally acknowledged as part owners of a company, by which they are entitled by right to dividend payments when declared and also the fact that companies annual reports acknowledge liability of such dividend payments, either claimed or unclaimed," cannot be applied to unclaimed dividends. "This is so even if the shares are transferred to a third party," it stressed. Many market operators have taken the advantage of the law to hold dividends of their clients and use them without their knowledge.

SEC stressed it was aware that whilst jurisdictions all over the world with operating capital market have extensive provisions on the treatment of unclaimed dividends, there seem to be a gap in Ghana's securities industry and related laws and regulations on the subject.

However, it said under section 9 of the Securities Industry Law (PNDCL) 333 as amend, SEC is vested with powers to 'maintain surveillance over activities in securities industry to ensure orderly, fair and equitable dealings in securities and to formulate principles for guidance of the industry and protect investors'. "The law also empowers the SEC to protect the integrity of the market against all forms of abuse and to create the necessary atmosphere for the orderly growth of the market," the circular related.

With these concerns, SEC is taking serious actions to reverse the trend of affairs in the capital market.

Some of the measures SEC is taking to reduce the incidence of unclaimed dividends in the market include directives to registrars, listed companies, investment advisors, broker-dealers and all affected market operators, to take reasonable steps to trace owners of unclaimed dividends through publication of unclaimed dividends, reporting of illegal possession of unclaimed dividends, announcing unclaimed dividend, registering of unclaimed dividend with registrars which would be opened for inspection at Annual General Meetings and Emergency General Meetings and insertion of 'shareholders' personal validation form' in annual reports to updates shareholders' records.

In the circular, SEC intends to initiate legislation or guidelines on unclaimed dividends, giving authority and control over its administration to SEC in line with its statutory investor protection mandate.

Under the legislation, SEC may constitute a trust fund, Unclaimed Dividend Trust Fund, in consultation with market operators to manage the unclaimed dividend fund. Part of the proceeds of the fund will be used to service the fund and pay interest to claimants.

Mr. Francis Nyoagbe, a Financial Analyst with Strategic African Securities (SAS) was happy with the proposals initiated by the SEC saying 'it is in line with international and best practices'. He was however not in favour of setting up a trust fund for unclaimed dividend because it may not be accountable to anybody as the SEC and the government is not real owners of the money. His preference was for listed companies to conduct investigations into unclaimed dividend by tracing the shareholders.

Among the reasons given for the high incidence of unclaimed dividends in Ghana include wrong address of shareholders, death of shareholders without any notification, relatives and heirs may not be aware of deceased's shareholdings, beneficiaries may have traveled without leaving a forwarding address, many shareholders fail to monitor their investments, minimum deposit requirements by commercial banks has forced many small shareholders to close their accounts, hence, the high incidence of return of dividend cheques back to registrars and many individual small shareholders not satisfied with dividend amount received, do not bother to claim dividend.

The others include many foreign residents, who do not have bank accounts in Ghana, find it difficult accepting their dividends in cedis overseas and ignorance of shareholders is generally regarded as one of the major causes of unclaimed dividends in the country.

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