Shareholders, regulators bicker over FG’s attempt to corner N158bn unclaimed dividend

Nigeria’s capital market is embroiled in another confidence crisis arising from investors’ anger against the Federal Government’s move to clampdown on an estimated N158billion unclaimed dividend declared by various corporate organisations for their shareholders.

Dividends are distributable earnings of a company, which are often determined by its board of directors.

When a dividend is declared, it becomes a liability on the company to pay investors of the company subject approval withholding tax.

However, over that last many years, thousands of registered shareholders have failed to collect their dividend due to a number of reasons including death, change address, and other logistic challenges thereby ballooning the stock of unclaimed dividends in the economy.

According to the Companies and Allied Matters Act (CAMA 1990), dividends are considered unclaimed after 15 months from the date of declaration.

Regrettably, payment of returns on investment  to shareholders of quoted companies in Nigeria has been fraught with huge administrative bottlenecks leading to backlogs over the years.

As little as over N2 billion in 1999, the nation’s stock of unclaimed dividend has risen sharply to N158.4 billion as at the end of 2019, representing an increase of 32 per cent from N120 billion recorded in 2018.

But the House of Representatives Committee on Capital Markets and Institutions estimates that the figure could cross the N200 billion mark at the close of this year.

Chairman of the House of Representatives Committee on Capital Markets and Institutions, Mr Babangida Ibrahim, who spoke during a recent investigative public hearing on the “Need to Investigate the Rising Value of Unclaimed Dividends, Unremitted Withholding Tax on Dividends and their Attendant Effects on Nation’s Economy,” which held at the National Assembly Complex, Abuja, explained that the projection was not in the best interest of the market as well as market participants, since the problem of huge accumulated unclaimed dividends remains a major challenge to the development of the Nigerian Capital market.

Having lingered for so long amid efforts by regulators to reduce it, Ibrahim argued that the huge volume of unclaimed dividends could adversely affect investor’ confidence, reduce availability of long-term capital for economic development and trigger volatility in regulation of the capital market.

He thereafter charged the SEC to ensure that all efforts are made to help shareholders get dividend from their hard -earned investments.

In response to this clarion call, the Director-General of the Securities and Exchange Commission, Lamido Yuguda, said about N29 billion of unclaimed dividend was claimed by investors following the introduction of regularisation of multiple accounts.

He said the SEC introduced the regularisation of multiple accounts in 2015, with which it requested all shareholders with multiple accounts to harmonise them by filling e-dividend mandate forms.

According to him, the Commission had begun mulling an initiative, to ensure consolidation of multiple accounts which involved the verification and isolation of the account beneficiaries, with a deadline of first quarter of 2021, as it seeks to end the issue of unclaimed dividends.

This initiative, Yuguda said, is in addition to the forbearance window granted holders of multiple accounts to show up and consolidate.

The initiatives are coming in the wake of Federal Government’s move to take custody of unclaimed dividends and dormant account balances in commercial banks in the country.

However, while providing highlights of the 2020 Finance Bill at a webinar organised by KPMG in collaboration with the Ministry of Finance, Budget and National Planning, Finance Minister,Mrs Zainab Ahmed, said the funds would be owed as a perpetual debt to shareholders.

According to Ahmed, the plan corrects an anomaly in the CAMA which provides that shareholders will lose their rights to unclaimed dividends after 12 years.

But investors including some economic experts have argued that unclaimed dividends should be reinvested in companies as retained earnings to grow their businesses and generate employment.

They expressed concern that government’s latest move may just be a prelude by a cash trapped administration hobbled by revenue shortfalls and rising expenditure, to eventually lay hands on unclaimed dividend and dormant account balances held over the years by banks in the country.

The President, Issuers and Investors ADR Initiative, Moses Igbrude, said the move by the Federal Government was a plot to rob shareholders of their hard earned money.

Igbrude explained that government had forgotten that it took over 30 per cent tax from companies that generated the dividends on profit before tax and 10 per cent from the individual investors through withholding tax on any dividends declared by them.

“The government’s proposed move is unacceptable, and an act of man’s inhumanity to man which will count against  private sector investment in the Nigerian economy.  It is pure stealing by the government and I am appealing to the National Assembly to reject and expunge in its entirety that section of the bill because for all intents and purposes, the Unclaimed Dividend Trust Fund is designed to collect the hard earned money of hapless Nigerian investors.

 How do you expect a shareholder with N1,000 unclaimed dividend in Lagos or other part of Nigeria to apply to the Accountant-General and subject to the Minister’s approval before he can claim such dividend?  How feasible and economical is such an arrangement?  We want those behind this proposal to have a rethink otherwise they are in for a long legal battle with the shareholders”, he said.

 For his part, the Head, Research at FSL Securities, Victor Chiazor, believes the SEC is not doing enough to protect investors and urged it to seek more strategic ways to curb the trend of unclaimed dividends.

 “If the government’s plan to takeover such dividends is implemented, it would most likely mean that the dividends have been forfeited by the investor and I think this might affect investors’ interest in the capital market. I expect the SEC to protect investors and find other ingenious ways to reduce the quantum of unclaimed dividend and support the current regularisation of multiple accounts which has also helped reduce the amount of unclaimed dividend”, he explained.

Also commenting, the National Coordinator, Progressive Shareholders Association of Nigeria, Boniface Okezie, said that the entire unclaimed dividend quagmire should be blamed on the SEC.

He said “The Federal Government, SEC and the Ministry of Finance have been eyeing our funds over the years and because we the shareholders resisted them, they have remained unsuccessful. There is no way the government will go ahead to take money that does not belong to it through the back door contrary to the new amended CAMA recently signed by Mr President. If the government is broke, then it should find other means to get money to run its business and not take monies belonging to shareholders.

We have already lost investments in Oando, Skye Bank, Afribank and yet nothing has been done. We had spoken to CBN and even SEC, but we have not received a single kobo and yet they want to tamper with our funds, the answer is NO. Whoever is advising the government is really misleading it” Okezie stated.

He thereafter called for an amendment to the CAMA by specifically expunging the clause on dividend becoming statute-barred after 12 years of being unclaimed.

Addressing the Investigative Arm of House Committee on Capital Market and Institutions recently, the Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, explained that Capital Market regulators and operators had leveraged technology to put in place many initiatives to address the issue of unclaimed dividends.

According to him,  the initiatives include the dematerialisation of shares which entails upload of quoted companies’ shares in the Central Securities Clearing System (CSCS) for ease of reconciliation, adoption of E-Dividend and E-Mandate, consolidation of multiple accounts, identity management engagements, introduction of electronic Initial Public offering (e-IPO), adoption of Minimum Operating Standards (MOS) for operators to enhance efficiency, intensified Investor Education, continuous Stakeholders’  Engagements, Process Reform and Streamlining and KYC Update on Clients’ accounts among others.

“Generally, the incentives for savers and capital providers in the capital market is the expectation of Dividends and Capital Appreciation. It is therefore our considered view that the proposed legislation, if passed, will be a great disincentive to savings, long-term capital mobilization and serious disruption of the Nigerian economy since it will take away the only expectation of investors in the market, Ezeagu said.

President, Chartered Institute of Stockbrokers (CIS), Mr Olatunde Amolegbe, who spoke on behalf of the Institute,  said the Securities and Exchange Commission (SEC) would always ensure  that unclaimed dividend is transferred to capital reserves  of the company for restricted utilisation such as capital expansion and issuance of bonus shares to the company’s shareholders.

According to him, the Bill is questionable at the stage the market is in currently.

The Chief Executive Officer, Wyoming Capital, Tajudeen Olayinka expressed dismay at the Bill, said “  if the bill is passed at the National Assembly, it would amount to de-leveraging the banking system, whose stock-in-trade is cash, while at the same time, putting too much pressure on public companies’ additional source of finance. Capital formation and investor confidence. (Daily Sun)