Ever since the privatisation policy in the early 1970's, unclaimed dividend has been a canker worm in the history of the capital market, CHRIS UGWU in this expose, examines the need to create awareness on the various efforts aimed at reducing the prevalence of unclaimed dividends and move the capital market forward.
Miffed by the geometric increase in the number of unclaimed dividends that is currently estimated to be in the region of N52 billion by the capital market regulator, the Securities and Exchange Commission (SEC), operators at the nation's bourse have expressed concern that the continued rise is detrimental to the growth and development of an emerging market that wants to achieve a world class market and attract direct foreign investment.
Reasons for high rate of unclaimed dividends
Reasons responsible for the growth of unclaimed dividend include issues of shareholders who have died and without information on next of kin, multiple applications by applicants during the investment process and deliberate actions to deny investors their benefit through various schemes by some registrars and companies who lack liquidity to pay.
Other factors are loss of dividend warrants following poor postal system, change of mailing addresses without notifying the registrars and lack of awareness on the part of some investors.
The Managing Director, Crane Securities Limited, Mr. Mike Okpara Eze, speaking to LEADERSHIP SUNDAY traced the genesis of the rising wave of unclaimed dividend to indigenisation era of the administration of General Yakubu Gowon.
According to him, "during this exercise, those in position of authority who had the wherewithal, acquired shares in the privatised companies with fictitious names of their drivers, cooks, gardeners, dead brothers, dead fathers etc in such a way that when the dividends came, they were not able to claim them why because there is no such persons to claim such".
Speaking in the same vein, the Managing Director Lambeth Trust & Investment Company Limited, Mr. David Adonri, explained that unclaimed dividends are increasing every year due to several factors.
According to him, the problem started several years ago during the indigenisation exercises when several shareholders made multiple subscriptions in fictitious names whose signatures they cannot remember.
He noted that the affected shareholders are also unable to open bank accounts in these fictitious names for the purpose of e-dividend collection.
He added that most of the unclaimed dividends are statute barred and forfeited to the companies in which case recovery by the affected shareholders may not be possible in the absence of means of identification.
Problems with e-dividends
E-dividend system of payment introduced by the Securities and Exchange Commission (SEC) in 2008 was meant to address the delay associated with the verification of proceeds of public offers as well as delay encountered by investors in getting returns on their investment and also reduce the incidence of unclaimed dividends but the way and manner it is being implemented by most of the registrars are worrisome to investors.
Following the astronomical increase in unclaimed dividends in the country, some market operators have linked the inability of most registrars and shareholders to embrace the e-dividend initiative as a major reason that have continued to compound the woes of investors.
Speaking to LEADERSHIP SUNDAY exclusively at the weekend, a senior broker on the condition of anonymity said the inability of the registrars to key into the e-process have continued to be constrain to the initiative meant to reduce the unclaimed dividend.
He noted that the intention might be deliberate as most times, the beneficiaries of unclaimed dividends are the Registrars of these companies because these monies are usually paid into their bank accounts in which however, the dividends become statute barred after a period of 12 years and the monies are returned to the companies that paid the dividend.
The Managing Director, Crane Securities Limited, Mr. Mike Okpara Eze also reacting to the rising wave of the unclaimed dividend said majority of the problem bedeviling the e-dividend malaise emanates from shareholders.
Eze noted that a good number of these shareholders are conservatively old fashioned and do not want to embrace the process of e-transaction.
"They bluntly refused to complete their e-dividend formalities presented to them leading to a compounding of the problem", he said.
However, over the years previous measures have been proposed and adopted towards reducing or eliminating the increasing incidence of unclaimed dividend.
The commission had directed the existing share application form in respect of public offering of securities to include information on next of kin and bank account number.
A memoranda on this was sent to the Nigerian Law Reform Commission on the review of the Companies and Allied Matters Act suggesting that after three months expiration, the unclaimed dividends should be paid into trust account to be managed by professional fund managers for the purpose of paying the shareholders whenever they come forward to claim their dividends. It was further suggested that consequently, the 12 years limitation period to recover dividends should be removed.
The recommendation was for the establishment of an unclaimed dividends trust fund by every company to protect investors' interest. This would be managed by independent fund managers for the purpose of ensuring that dividends are no longer statute- barred after 12 years and that investors have access to their dividends whenever they appear to claim them.
Funds realised may be invested in outlets like the priority infrastructure or sectors of the economy that will generate the relevant multiplier effects to stimulate economic growth and create wealth and employment in line with the expectations of NEEDS, which emphasises on a private sector-driven economy.
According to the former Director General of SEC, Mr. Musa Al-Faki, of note was the mandatory publication of the list of investor dividends that have remained unclaimed in the annual reports of the quoted companies as well as a bill recommending the setting up of an unclaimed dividend trust fund.
The fund was expected to administer unclaimed dividend by going extra mile to look for owners. He noted that evidence abound on how some companies used unclaimed dividends to manipulate their results. The concern according to him, informed the initiative to setting up the trust fund which unfortunately the bill was rejected by the National Assembly.
But recently, the House of Representatives disturbed by this geometric increase at a plenary session, passed a resolution mandating the House Committee on Capital Markets and Institutions "to investigate the high volume of unclaimed dividends in quoted companies in Nigeria and report to the House.
SEC hailed the resolution, which came about through a motion sponsored by one Akpan Micah Umoh. Umoh had in his motion, said the unclaimed dividends were gradually mounting up to over N40 billion.
But SEC explained in a statement that the unclaimed dividends actually stood at N52.2 billion, saying that out of this figure, 84.7 per cent (N42.5 billion) was held by nine out of 23 registrars who submitted their returns.
"This legislative attention to the intractable issue of unclaimed dividends is a positive development. It was out of concern for this unfortunate situation in which return on shareholders' investment by way of dividends is perennially locked in the unclaimed dividends saga that as far back as in 2002, the SEC sponsored a bill in the National Assembly for an act of parliament which will set up the 'Unclaimed Dividend Trust Fund'.
"This fund and the Act of Parliament which set it up were intended to drastically reduce or completely eliminate the incidence of unclaimed dividend by providing alternative domicile for funds deriving from unclaimed dividends to what was stipulated in Section 382(1) of the Companies and Allied Matters Act", SEC said.
That section of CAMA stated that: 'Where dividends are returned to the company unclaimed, the company shall send a list of the names of the persons entitled with the notice of the AGM to the members. After the expiration of three months of the notice mentioned in 382(1), the company may invest the unclaimed dividends in an investment outside the company. No interest shall accrue on the dividend against the company.'
However, the apex regulator of the capital market explained that if passed into law, the 'Unclaimed Dividend Bill' would have removed the point of domicile for unclaimed dividends from their originating companies to another party managed Trust Fund and removed the incentive which feeds the collusion between certain players in the market to frustrate shareholder access to dividend accruals on their investment.
The commission noted that if diligently prosecuted, the investigation by committee may well hold the key to unlocking the challenge posed to the Nigerian capital markets and investor public by this phenomenon, which contributes to the erosion of confidence in the market by denying investors their rightful returns on investment.
SEC declared: "Also deserving of urgent legislative attention is Section 385 of CAMA which provides that the right of a shareholder to sue for dividends subsists only for 12 years beyond which such action becomes statute barred. This deserves review.
"The establishment of an Unclaimed Dividend Trust Fund will cure this defect by making it possible for shareholders to recover their dividends, however long this may take. Certainly, a more proactive legislative oversight will complement the efforts which the SEC has made and sustained against unclaimed dividends over the years", the regulator noted.
Majority of stakeholders including shareholders have voiced strong opposition to the proposed fund contending that it was an indirect way by the government to control the fund and as a private sector problem it should be resolved by the private sector, adding that any fund that government initiates or is in anyway involved in would be mismanaged.
Reacting to the development, the National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu who said the bill will hit the brick wall noted that if passed 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 status barred.
Nwosu urged shareholders and companies to rise up against the amendment.
"What I am saying is that companies must rise 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.
He said if the bill is allowed to pass into law, the level of activities in the capital market will gradually diminish and the current vibrancy seen in the market would fizzle out fast which could equally deter foreign direct investment in the economy.
Nwosu said if adequate investigation is carried out, it would be discovered that those behind the bill do not know anything about capital market operations.
Making reference to unclaimed investments in firms, banks and other financial institutions, Nwosu said it is strange that while the affected sectors have not been contacted, a law is being proposed for them.
The former Registrar/Chief Executive, Institute of Capital Market Registrars (ACMR), Dr. David Ogogo in the same vein, said improvement in infrastructure coupled with adequate public awareness would make unclaimed dividends a thing of the past, adding that the use of electronic payment platforms will bring about the transparency required in the payment of dividends.
Ogogo said 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 also extremely worrisome to share holders who fear the unclaimed dividends are no longer safe as all expenditures which include but not limited to staff salaries, pensions, travel expenses, among others would be defrayed from the unclaimed dividends.
"This will certainly threaten the safety of the fund if dividend monies of share holders are used for this purpose. It does not amount to protecting the investors, a reason which the establishment of the fund seeks to achieve", he said.
Ogogo said 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.
"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.
The rise in the unclaimed dividend in the stock market is becoming frightening as most companies have been known to now plough the money that ought to have been paid to shareholders back into their business.
While the bill at the National Assembly is still pending; the market regulators must fashion out modality to reduce the incidence and bring to book any company that might have wittingly failed to go the extra mile at ensuring that investors in their companies receive their cash dividend.
The apex body must as matter of urgency step up its awareness campaign at making investors especially those in the remote part of the country embrace the e-transaction in the market.
Investors themselves ought to be doing regular updating of their profile with their brokers and even registrars of companies where they have shares.
However, the issue of creating awareness in the equities market for investors is sacrosanct if the rising profile of the issue of unclaimed dividend wants to be reduced to be nip in the bud.