BY EMEKA EJERE
Contrary to the expectation of many, the running battle between the federal government and shareholders of companies listed on the Nigerian Stock Exchange (NSE) over the management of unclaimed dividends may not be ending anytime soon.
On Monday, some shareholders under the aegis of Palm Wealth Shareholders Association (PWSA), instituted a case against the federal government at the Federal High Court sitting in Abeokuta to stop the federal government from taking over their unclaimed dividends
This is even as provisions of the Finance Act 2020 recently signed into law by President Muhammadu Buhari were intended to put an end to the age-long crisis.
Unclaimed dividends are declared interest/redemption amount distributed by a company to its share/debenture-holders, which remains unclaimed. These amounts get accumulated with the company over the years.
Prior to the advent of information technology, which now enables electronic dividends payment to shareholders, in addition to facilitating other engagements to be conducted with shareholders, Nigeria’s economy largely rode on analogue, with everything manually handled.
The demise of a shareholder coupled with cumbersome processes involved in finalising share inheritance by the deceased’s family, for instance, contributed to the piling up of unclaimed dividends. Over time, unclaimed dividends have been subject of fierce arguments between companies and various shareholder groups at venues of annual general meetings (AGMs).
Companies had always wanted to take over unclaimed dividends, with a view to ploughing back such monies into business, an option some shareholders vehemently opposed. These, among many other reasons, have led to accumulation of the huge unclaimed dividends presently put at over N158 billion now threatening the stability of the stock market, given constant agitation on how to manage the situation.
Curbing rise in unclaimed dividends
Over the years, the Securities and Exchange Commission (SEC) working with other stakeholders has come up with various measures, including the introduction of electronic dividend payment system that allows shareholders’ dividends to be paid directly into their designated bank accounts.
To facilitate this, SEC, along with the Central Bank of Nigeria (CBN) agreed to allow savings account holders receive unclaimed dividend into their savings account. This particular measure, according to the Institute of Capital Market Registrars (ICMR), has resulted in payout of 92 to 95 percent of declared dividend on the payment date.
The SEC has also mandated separation of the custodian of unclaimed dividend funds into two after 15 months, which entails that fifteen months from the payable date of a declared dividend, 90 percent of the unclaimed portion will be returned to the company that declared the dividend while 10 percent will remain in the custody of the registrars who are the paying agents.
More so, to eliminate the issue of disparity in names, investors who bought shares using multiple names have been authorised to regularise their accounts through their stockbrokers and registrars with valid evidence of purchase.
However, of all the measures the Commission has come up with, the idea of establishment of an Unclaimed Dividend Trust Fund – has never been received well in the market. In fact, the mere mention of the Trust Fund has always elicited rancour and controversy among the investors/shareholders.
The Finance Act 2020
On December 31, 2020, Buhari signed the Finance Bill, 2020 (now Finance Act) into law alongside the 2021 Appropriation Bill (now Appropriation Act). Part XV of the Finance Act 2020, which had a commencement date of January 1, 2021, made provisions for the establishment of Unclaimed Dividends Funds. It provided that “Subject to Section 44 (1) (h) of the Constitution of the Federal Republic of Nigeria, 1999, there is established by the trust, as a sub-fund of the Crisis Intervention Fund, an unclaimed Funds Trust Fund.”
Thus, “from the commencement of this Act, any unclaimed dividend of a public limited liability company quoted on the Nigerian Stock Exchange and any unutilised amount in a dormant bank account maintained in or by a deposit money bank, which has remained unclaimed or unutilized for a period of not less than six years, from the date of declaring the dividend or domiciling the funds in a bank account, shall be transferred immediately to the Unclaimed Funds Trust Fund.”
The provision, however, exempted government-owned accounts with the clause: “provided that this section shall not apply to official bank accounts owned or belonging to the federal government, state governments or local governments or any of their ministries, departments or agencies.”
The Act also provided that the Debt Management Office shall supervise the operations of the fund. The Act prescribed sanctions for default. It indicated that any financial institution that failed to remit the unclaimed dividends shall be liable to a fine three times the amount unremitted. It also said that owners of the funds could claim the funds at any time.
“Such unclaimed dividends and utilised amounts in a dormant bank account transferred to the Unclaimed Funds Trust Fund shall be a special debt owed by the federal government to the shareholders and dormant bank account holders respectively and shall be available for claim, together with the yield thereon, by the shareholder and the bank account holder at any time, pursuant to the aforementioned perpetual trust,” it said.
Giving an idea of what government is targeting in assuming control of unclaimed dividends, Minister of Finance, Budget and Planning, Mrs. Zainab Ahmed, at the presentation of 2021 budget breakdown, gave a conservative estimate of N850 billion.
She said, “There would be as much as N850 billion. We have to get the exact report from CBN and then Company’s Registrar to ascertain that so it could be realized into this special trust fund for unclaimed dividends and dormant account.
“Again, this is a special trust fund, it means government is keeping the money in trust for the beneficiaries at any time a registrar or a bank confirms that this is a true and bona fide beneficiary of this fund then government will release from that trust fund to the investor’s bankers bank entitlement,” she added.
However, stakeholders said the proposed controversial plan by the federal government to manage unclaimed dividends would have adverse effects on investor confidence and future growth of the market.
Registrar-General, Corporate Affairs Commission (CAC), Mallam Abubakar Garba, said the legislation had solved age- long problem associated with unclaimed dividends. “Government has acted right. With this, unclaimed dividends will not revert to the company any longer”, he said.
“The money will be used by the government and when shareholders come up, he can come for his money. If the person dies, the children can. Government has the right to protect the people money. It’s better for government to use the money, when the shareholder comes, he collects his money. It’s not better for a shareholder to collect dividends of another person’s dividends.
“This is better than what was provided for in old Companies and Allied Matter Act. We support the new provision.”
On its part, SEC said it was not against the proposal by the federal government to set up unclaimed dividends and balances trust fund.
Clarifying issues during the commission’s presentation at the one-day public hearing on the Finance Act 2020 in Abuja recently, head, Securities and Investments Services (SIS) Department at SEC, Mr. Abdulkadir Abbas, said:
“We are not against the proposal to set up unclaimed dividends and balances trust fund. Our concerns are with respect to the governance structure of that proposed fund and that is why we are asking for reconsideration.
“We are advocating modifications of the provisions with regards to management and governance of the trust fund to avoid possible harm to the capital market which is still struggling to survive.”
However, Independent Shareholders Association of Nigeria (ISAN) presented a position paper on their objections to the proposed fund at the public hearing of the Senate Committee on Finance, Trade and Investment and Public Procurement on the Finance Bill 2020.
In a statement signed by the National Coordinator, Mr. Anthony Omojola, and founder, Sir Sunday Nwosu, ISAN described dividends as private wealth of investors, either individuals or corporate entities and that the idea of converting such private wealth to federal government’s revenue negates the relevant provisions of the rights to own property and asset as guaranteed by the 1999 Constitution (as amended).
According to the association, to the extent of its inconsistency with the 1999 Constitution, the proposed trust fund is null and void as the law expressly states that there shall be no forceful takeover of any private moveable or immovable property of any Nigerian without due and appropriate compensation and or valid court order.
“It is nothing short of expropriation, which the constitution forbids. Dividends, including unclaimed dividends, are fund generated by private companies and made available to its shareholders in line with the provisions of Companies and Allied Matters Act (CAMA).
“These funds are available only after the company has paid a host of taxes, including Companies Income Tax Act (CITA), Educational Trust Fund (ETF) and tax of about 32 per cent of gross profit is paid to the federal government and 10 per cent withholding tax on the shareholders for every dividend declared,” ISAN stated.
In an interview with Business Hallmark, Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, cautioned that rather than take over the funds, government should encourage the owners to come forward by way of sensitization and simplifying the process.
He said, “I don’t think it’s appropriate. You don’t look at funds that belong to people. I think what government needs to do is to ensure more sensitization to encourage people who have some of those funds to come forward.
“Because some of them are still around but because of the processes or the parents have died or something, they just forget it. You can simplify the process to encourage the owners of this money to come and collect their money or their children or their relations as the case may be.”
Similarly, human right lawyer, Tunji Abdulwaheed, said he does not support government borrowing unclaimed dividends with written consents of the owners.
““Ideally, before a thing like that is done, everything has to be spelt out – the time to pay back, the rate of interest and so on, but in this case there is nothing like that. No, it’s not tidy.”
However, despite opposition from stakeholders, the federal government is riding on back of the new law to perfect ways to borrow funds from unclaimed dividends and dormant bank account balances unattended to for at least six years.
But the President of PWSA, Mr. Simon Emokeraro, said in a statement that the case with Suit No. FHC/AB/FHR/14/2021, which has the Attorney General of the Federation and Minister of Justice, Minister of Finance, Budget and National Planning and Accountant General of the Federation as parties, would be heard on February 25, 2021. It is now left for the court to decide.