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Nigeria: Examining Govt’s Move On Unclaimed Dividends

Goddy Egene writes that the plan by the federal government to set up a trust fund through the Finance Bill to manage unclaimed dividends in the nation’s capital will be counterproductive and should not be allowed by lawmakers

Doing business in Nigeria is difficulty due to the poor state of infrastructural facilities. Companies operating in the country provide virtually all they the need to run smooth operations. Amidst the infrastructural challenges and other high cost of operations, companies strive to make profit and declare dividends for their shareholders.

Over the years, the dividends paid by companies have sustained many investors and have also encouraged them to remain in the market. However, unclaimed dividends have remained an issue in the market just like other climes. It is estimated that there are about N150 billion in the market.

But given the fact it is global issue, Nigerian legislations made adequate provisions on how to treat unclaimed dividends. For instance, the Companies and Allied Matters Act (CAMA), stipulates a 12-year statute of limitation, unclaimed dividends should be ploughed back into the company that declared it.

Also, regulators and operators in the financial markets have been working together to ensure that unclaimed dividends are reduced considerably.

For instance, regulators such as the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN) have initiated the Electronic-Dividend Mandate platform, which is being fully supported by trade group’s self-regulatory organisations and other stakeholders in the market. Already, these effort have started to yield positive results.

Instead of the federal government to further support efforts to ensure that unclaimed dividends get back to the owners and ensure a reduction going forward, the government is planning to hijack the unclaimed dividends.

The plan to take over the over N150 billion is being hatched through the Finance Bill 2020. In part V of the bill, the government intends to set up an Unclaimed Dividends Trust Fund.

According to the government, in section 39 (a) of the bill, from the commencement of this Act, any unclaimed dividends of a public limited liability company quoted on the Nigerian Stock Exchange (NSE), or other such stock exchange, which has remained unclaimed for a period of not less than three years from the date of declaring the dividend shall be transferred immediately to the Unclaimed Dividends

Trust Fund, provided that unclaimed dividends that have been transferred to the reserves of the company having remained unclaimed for more than 12 years before the commencement of this Act shall so remain transferred in the company’s reserves;

“All unclaimed dividend that has remained unclaimed for a period of not less than 12 years shall lapse into government revenue and shall be transferred from the Unclaimed Dividends Trust Fund to the Federation Account as Federation Revenue,” the government added.

This provision in the Finance Bill has attracted wide condemnation from shareholders, market operators and other stakeholders and they have urged law makers not to pass the bill with this provision. Securities dealers, shareholders and registrars, among others have raised their voices against the proposal.

Investors and experts have insisted that unclaimed dividends should be reinvested in companies as retained earnings to grow their businesses and generate employment instead government managing them.

They also contended that the take-over of unclaimed dividends by government is not necessary since market regulators, through various initiatives, were taking steps to ensure that unclaimed dividends were reduced to the barest minimum.

According to stakeholders we are witnesses to scandals and massive stealing in government agencies set up to administer pension funds.

The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, said the proposal was unnecessary because capital market regulators and operators had leveraged technology to put in place many initiatives that are already addressing the issue of unclaimed dividends.

He said the initiatives include: 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, and introduction of electronic Initial Public offering (e-IPO).

Others are the adoption of Minimum Operating Standards (MOS) for operators to enhance efficiency; intensified investor education, continuous stakeholders’ engagements, process reform and streamlining and know your customer (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 mobilisation and serious disruption of the Nigerian economy since it will take away the only expectation of investors in the market,” Ezeagu said.

Also speaking, the President, Chartered Institute of Stockbrokers (CIS), Mr. Olatunde Amolegbe, described the bill as objectionable at this stage of the market.

He said the SEC would always ensure that unclaimed dividends are transferred to capital reserves of the company for restricted utilisation such as capital expansion and issuance of bonus shares to the company’s shareholders.

Another securities dealer and the Chief Executive Officer, Wyoming Capital, Mr.Tajudeen Olayinka, expressed dismay at the bill.

“If passed by the National Assembly, would amount to deleveraging 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 are at stake as well,” he said.

Shareholders under the aegis of Independent Shareholders Association of Nigeria (ISAN), have said the underground moves to take over the funds must not be allowed, stressing that the government lacks powers to manage funds belonging to private sector investors

“Dividends are private wealth of investors, either individuals or corporate entities. The idea of converting such private wealth to federal wealth negates the relevant provisions of the rights to own property as guaranteed by the 1999 constitution. Our opinion, is that S39 to the extent of its inconsistency with S44 of the 1999 constitution (as amended)is null and void. The law expressly states that there shall be no forceful takeover of any private move-able property of any Nigerian without due and appropriate compensation and or valid court order,” the shareholders said.

ISAN explained that dividends are only available to investors after “the company has paid a host of taxies, including companies income Tax Act(CITA),Educational Trust Fund(ETF) and other taxes are paid to the federal government -including 10 per cent withholding tax on the shareholders for every dividend declared.”

“The statute of limitation provides for expiration of debts after six years. CAMA 2020 by S432 increased the limitation to 12 years. Is government by any chance taking the position that the statute of limitation is unconstitutional?”Government lacks the capacity to manage the funds and has demonstrated a lack of capacity to administer funds. Imagine a shareholder with an unclaimed dividend of about N1, 000 to write /go to Abuja just to make a claim of the unpaid dividend. The stress and bureaucratic bottleneck is too cumbersome and will not solve the unclaimed dividend problem,” the shareholders said.

They stressed that it is important to know that dividends are distributable earnings to shareholders.

“Dividends, whether cash dividends or share dividends also known as bonus should belong to the shareholders and not to the company who distributed them or the government. Therefore, every effort must be made to ensure that the shareholders get their dividends from their hard earned investment and should not be denied what rightfully belongs to them.

“Leaving the management of the Fund in the hands of government will create biggest bureaucratic bottleneck for such shareholders to claim such dividends in future. Also, creation of Unclaimed Dividends Trust Fund will usher in nepotism and corruption in the appointment of those that will manage the fund to the detriment of shareholders/beneficiaries,” the shareholders declared.

The new provision conflicts with the previous one in Companies and Allied Matters Act (CAMA) that guarantees a 12-year statute of limitation on unclaimed dividends, after which the fund would be ploughed back into the company that declared it,” they said.

In the opinion of the President of the Institute of Capital Market Registrars (ICMR) and Chief Executive of Coronation Registrars Limited, Mr. Seyi Owoturo, the federal government should come up with a holistic legislation on unclaimed financial assets across the economy with the viewing to managing them for the benefit of all instead of isolating unclaimed dividends in the capital market through the finance bill.

According to him, a research carried out four years ago showed that there is more than N1 trillion unclaimed in the country and asked government to approach the National Assembly with a bill that would be passed as unclaimed assets law in Nigeria.

Owoturo said: “We did a study about four year ago that estimated the value of on unclaimed financial assets to be more than N1 trillion. The problem that I see is that the government shouldn’t be using the Finance Bill to takeover unclaimed assets. It should go to the National Assembly and do an unclaimed assets law. Let us face unclaimed assets generally. There are unclaimed (banker’s) cheques that are issued by companies. In Britain these cheques will go to the Crown while in the United States of America (USA) they will go to the state of the intended beneficiary’s last known address.

There are also unclaimed insurance benefits and dormant bank accounts that were estimated at over a trillion Naira four years ago. The unclaimed dividend is only about N150 billion. Really if there is a problem, it certainly is not unclaimed dividends. The real problem here is that they abound all over the place.”

He explained that the enactment of a holistic unclaimed assets law would also resolve the potential conflict that would arise from the finance bill which stipulated that the unclaimed assets would revert to the government after 12 years while the amended Company and Allied Matter Act 2020 stated that unclaimed dividend should revert to the company.

“Where will the money go? All over the world, countries seek to institute discipline and transparency around unclaimed assets by letting them go to either the sovereign or the state governments. But what the bill is saying is that after 12 years it would not revert to the company as stated by CAMA but to the government,” he said.

Speaking in the same vein, Prof. Uche Uwaleke of the Nasarawa State University, said Nigeria should emulate countries like Uganda, Kenya, the United Kingdom and USA that have specific legislations that govern the treatment of unclaimed assets in their respective jurisdictions.

Uwaleke advised against the involvement of the Accountant General of the Federation and the Ministry of Finance in the management of the trust fund that would shepherd the unclaimed dividends when they became statue barred.

He said: “What I do not support there is bringing in the Ministry of Finance and the Accountant General to the management of the trust fund. I think that the trust fund should be managed by the stakeholders themselves so that registrars should be part of its management.

He also asked: “What about the unclaimed dormant accounts that also run into billions?” and warned against the anticipated moral hazard that might ensue if companies are allowed to take over the unclaimed dividend.

“There is this issue of moral hazard in some countries where these funds return to the companies in the sense that if unclaimed dividends should return to the companies after a period of time there will be n incentives for those companies to be chasing the real owners to come for those dividends.

“So my recommendation is that it should not be limited to dividends alone, it should also cover dormant bank accounts. I think that the idea that government should takeover unclaimed assets is in line with what obtains in other jurisdictions,” Uwaleke said.

To the Registrar/CEO of Institute of Capital Market Registrars (ICMR), Mr. Jonathan Eborah, unclaimed dividends represent the least unclaimed funds across all jurisdictions.

“There are only two countries whose unclaimed benefits fall below the Trillion Naira threshold and they are Nigeria’s unclaimed dividends at N158.44billion and the US’ unclaimed pension benefits of N114 billion. This indicates that there are unclaimed dividends in Nigeria and unclaimed pension benefits in the US, but they are comparatively insignificant to what obtains in their respective classes in other nations and in other classes. For Nigeria, with total dividend payout of 94.84 per cent between 2009 and October 2019, it appears that the effort by the stakeholders to reduce unclaimed dividends is yielding results,” he said.

Eborah suggested the way to handle the reduce the unclaimed dividends instead of moves by the government to take over its management.

According to him, there must be an understanding that unclaimed dividends (like other unclaimed funds) is a global phenomenon.

“The multiple subscription initiative by the capital market community should be sustained to reduce unclaimed shares which will ultimately further reduce unclaimed dividends. The SEC should insist that every new entrant to the capital market must be fully known and provide all that is required for electronic payment. ICMR should establish a Special Depository licensed by the SEC with the responsibility to locate owners of unclaimed accounts or their next of kin and encourage them to activate their claim, take up insurance cover over the funds, and manage the funds which shall remain with the registrars,” he said.

He said this would will become a Nigerian model which may be adopted by other countries, stressing that ICMR (The special Depository), will have a role in addressing the issue of unclaimed dividend funds by collecting data from registrars, building and maintaining infrastructure frameworks that will help reconnect members with their unclaimed funds so as to solve, or lessen the issue of unclaimed dividend/funds on a continuous basis.

“There should be a continuation of public enlightenment by the SEC, the special Depository and other stakeholders. Finally, banks should encourage and assist their customers to embrace the electronic dividend registration,” he said.

On their part, ISAN suggested that government should make it easier for the estate of deceased shareholders to obtain probate/administration via the courts and that banks should help in ensuring ease of executing probate/letters of administration as way to tackle unclaimed dividends in the country.