Recently, the Securities and Exchange Commission (SEC) put the figure of unclaimed dividends in the country at an alarming N60bn[i]. The news has since generated considerable reaction from stakeholders including regulatory authorities and shareholders’ associations. Various reasons have been adduced for the steady increase of unclaimed dividends in the country. These include poor record keeping and update of shareholders’ data by registrars, poor communication channels, transportation and logistics systems and even in certain instances, a calculated attempt by corporate organisations to deprive shareholders (especially minority shareholders) of their dividends by taking advantage of the inefficiencies in the system[ii]. In an attempt to stem the tide of increasing unclaimed dividends, the SEC issued a circular in April, 2013 to make electronic payment of dividend mandatory for all shareholders, giving a compliance deadline of Monday June 3rd, 2013. However, the date has been postponed indefinitely due to feedback received from stakeholders who called for a review of the directive as it was too sudden and did not take the realities into consideration such as inadequate shareholder enlightenment and efficient payment systems in the country. Presently most banks in the country only accept dividend cheques through current accounts.
Meaning of Dividends
Dividends can be described as the portion of a company’s profits distributed to its shareholders. A company, whether public or private, is empowered by law [iii]to pay dividends to its shareholders out of the distributable profits of the company. Distributable profits here refers to profits arising from the use of the company’s property, revenue reserves or profit realised from the sale of a fixed asset or net profit where the assets sold are more than one[iv]. Every shareholder is entitled to share in the company’s profit and dividend payable to such shareholder shall be according to the amounts paid up by him on the shares on which the dividend is paid. Once declared, the shareholder has a right to sue for dividends as it is a special debt due to him and recoverable by him from the company within 12 years.
Declaration of Dividends
The law empowers the company in a general meeting to declare dividends based on the recommendation of the directors. Where the company deems it fit, it may reduce the amount of dividend proposed by the Directors but cannot increase it. It must be noted that Directors who pay or are party to the payment of dividends out of capital or in contravention of the law are personally liable jointly and severally to refund to the company the monies wrongfully paid out as dividends[v]. However, the law also places some responsibility on the shareholders as directors have the right to recover such dividends from the shareholders if they received the dividends knowing that the company had no power to pay them.
Where dividends have been returned to the company unclaimed for any reason, the law requires the company to send a list of such unclaimed dividends with the notice of the next AGM to members. A problem anticipated with this provision is that where the dividend was returned in the first place as a result of change of address of the recipient, it will serve no useful purpose to send the list of unclaimed dividend to the same address except the shareholder has notified the registrars of the change and they have updated the records to reflect any change of address. At the expiration of three months after the notice of meeting is sent, the company may invest the unclaimed dividend for its benefit and the company shall not pay any interest to the shareholder on the dividend so invested. Where dividend was not sent to a shareholder due to omission on the part of the company, interest will accrue on it at the current bank rate from three months after the date they ought to have been posted. The date of posting of a dividend warrant shall be deemed to be the date of payment of such dividend[vi]. Unclaimed dividends stand forfeited by shareholders twelve years after such dividend was declared[vii].
Given the aforementioned provisions of the law, one would wonder why there is so much fuss about unclaimed dividends and why there seems to be an unending rise in the amount of unclaimed dividends. There is an urgent need to address the inefficiencies in the system and provide for smoother and more reliable payment methods to reduce unclaimed dividends to the barest minimum. Individual and institutional shareholders should participate and take more active interest in their holdings and should be encouraged to notify their companies of any changes in their information. It may also be useful for company registrars to make extra efforts in keeping their records updated in order to reduce the amount of forfeited dividends. Directors’ duty of utmost good faith to the company should be extended to its individual shareholders. Regarding public or listed companies, apart from statutory newspaper publications, broadcasting relevant information on the radio and television could also make a difference. With regard to the forfeited dividends, apart from reinvesting such funds in the company to grow the business, the funds could also be utilised for Corporate Social Responsibility projects that would impact positively on the lives of persons living in the areas where the company operates.
[i] Disclosure was made by the DG, SEC at a media briefing in Lagos in March. See The Punch Newspaper: http://www.punchng.com/news/unclaimed-dividends-now-n60bn-sec/ last viewed on the 7th of June, 2013.
[ii] Note (i) above.
[iii] Section 379 Companies & Allied Matters Act (CAMA), 2004
[iv] Section 380 CAMA
[v] Section 386 CAMA
[vi] Section 382 CAMA
[vii] Section 385 CAMA