The rising wave of unclaimed dividends in the nation’s capital market has become a thorny issue that seems to have defied all solutions despite the aggressive drive by the regulators to ensure that dividend payout by companies are received by investors promptly.
The Securities and Exchange Commission (SEC) at the last count said the size of unclaimed dividends as at December 2011 was N52.2 billion.
Reasons responsible for the growth of unclaimed dividend include shareholders who died intestate 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.
However, over the years measures have been proposed and adopted towards reducing or eliminating the increasing incidence of unclaimed dividend.
The Securities and Exchange 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 memorandum 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 a 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 New Economic Empowerment Development Strategy, which emphasises 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 the 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 bill unfortunately, was rejected by the National Assembly.
However, the issue came up again recently at a plenary session in the National Assembly. The House of Representatives had passed a resolution mandating its House Committee on Capital Market and Institutions to investigate the high volume of unclaimed dividends in quoted companies in Nigeria and report to the House within four (4) weeks.
The resolution attracted commendation from SEC which noted the resolution which came about through a motion sponsored by Hon. Akpan Micah Umoh, which in turn was predicated on the efforts of the SEC, which, in his words revealed that “unclaimed dividends were gradually mounting up to over N40 billion”.
“This legislative attention to the intractable issue of unclaimed dividends is a positive development. The size of the problem has since surpassed the N40 billion referred to by Hon. Umoh since as at December 2011, the size of unclaimed dividends was N52.2 billion. Out of this figure, 84.7 per cent i.e. N42.5 billion was held by nine out of the 23 registrars who submitted their returns.
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 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.
Miffed by the increasing incidence of unclaimed dividend in the nation’s capital market, operators at the capital have expressed concern that the continued rise was detrimental to the growth and development of an emerging market that wants to achieve a world class market status and attract direct foreign investments.
They called on the National Assembly and market regulators to expedite action and fashion out modalities 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 dividends.