Capital market: Stakeholders kick over government’s move to grab N158bn unclaimed dividends

*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 Capital market ─Hon. Babangida Ibrahim, Chairman of House of Representatives Committee on Capital Markets and Institutions

*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, say shareholders

Alexander Davis | ConsumerConnect

A fresh confidence crisis may be brewing in the Nigerian capital market over the stock investors’ current resentment against the Federal Government’s attempt to corner estimated N158billion unclaimed dividends which various corporate organisations have declared for their shareholders over the years.

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 to approved Withholding Tax.

For several years in the country’s capital market, however, thousands of registered shareholders have failed to collect their dividends due to a number of reasons.

Such reasons include death, change address, and other logistical challenges thereby boosting the stock of unclaimed dividends in the economy.

The Companies and Allied Matters Act (CAMA 1990) explains that 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.

Trading Floor of the Nigerian Stock Exchange (NSE)

From as little as over N2 billion in 1999, the nation’s stock of unclaimed dividends 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, revealed The Sun investigation.

Report indicates that the House of Representatives Committee on Capital Markets and Institutions estimated that the figure could be over N200 billion by the end of 2020.

Hon. Babangida Ibrahim, Chairman of House of Representatives Committee on Capital Markets and Institutions, had stated at 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”, at the National Assembly (NASS), Abuja, FCT, that the projection was not in the best interest of the market as well as market participants.

Ibrahim noted that the problem of huge accumulated unclaimed dividends remains a major challenge to the development of the Nigerian Capital market.

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

The House of Representatives Committee on Capital Markets and Institutions thus urged the Securities and Exchange Commission (SEC) to ensure that all efforts are made to help the shareholders to get due dividends from their hard-earned investments.

Lamido Yuguda, Director-General of SEC, also disclosed that about N29 billion of the unclaimed dividends had been received by investors following the introduction of regularisation of multiple accounts.

The Director-General of SEC said the Commission introduced the regularisation of multiple accounts in 2015, when it requested all shareholders with multiple accounts to harmonise them by filling e-dividend mandate forms.

SEC 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, noted Yuguda.

According to him, this initiative 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, report stated.

Nonetheless, despite the regulators’ efforts at ensuring that share investors get their due but unclaimed dividend, Mrs. Zainab Ahmed, Honourable Minister for Finance, Budget and National Planning, while providing highlights of Finance Bill 2020 at a recent webinar organised by KPMG in collaboration with her ministry, declared that the funds would be owed as a perpetual debt to shareholders.

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

Meanwhile, investors including some economic experts have argued that instead of the Federal Government’s taking unclaimed dividends, the funds should be reinvested in companies as retained earnings to grow their businesses and generate employment.

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

Moses Igbrude, President of Issuers and Investors ADR Initiative, in a telephone said the Federal Government’s plan was a plot to rob shareholders of their hard-earned money.

Igbrude explained that government had forgotten that it took over 30 percent tax from companies that generated the dividends on Profit Before Tax (PAT) and 10 percent from the individual investors through Withholding Tax on any dividends declared by them.

He stated: “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.

He remarked: “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.”

Victor Chiazor, Head of Research at FSL Securities, rather maintained that he believes SEC is not doing enough to protect investors.

Chiazor said: “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 urged the regulatory Commission to seek more strategic ways to curb the trend of unclaimed dividends in the country’s Capital market.

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

He stated that “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.

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

Chief Onyenwechukwu Ezeagu, Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), while addressing the Investigative Arm of House Committee on Capital Market and Institutions recently, also explained that Capital Market regulators and operators had leveraged technology to introduce several initiatives to address the issue of unclaimed dividends.

The initiatives, he said, 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, and introduction of electronic Initial Public offering (e-IPO).

Others are 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, stated Ezeagu.

He added: “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.”

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

The Bill is questionable at the stage the market is in currently, he noted.

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