Introduction
A little over a decade ago, Nigeria’s total unclaimed dividends reportedly stood at N60bn[i]. This figure has now tripled to over N190bn as at August 2023, according to the Securities and Exchange Commission[ii]. Over the years, the Securities and Exchange Commission (SEC) has made efforts to check the increase in unclaimed dividends albeit with minimal success as the amount of unclaimed dividends continues to soar with each passing year. Two notable and commendable steps in this regard are the creation of a search portal on the SEC website which allows members of the public to ascertain if they have any unclaimed dividends and the launch of the Electronic Mandate Management System Platform by the Nigerian Inter-Bank Settlement System in collaboration with the SEC and Banks a few years ago. A self-service portal was launched on the platform in February 2024 to enable shareholders to process applications for unclaimed dividends. However, there is still a lot to be done to address the challenge of unclaimed dividends in Nigeria.
The problem
Historically, virtually everything about trading in stocks and shares including dividend payments was largely analogue. Dividends were paid by warrants through surface mail by posting them to the address provided by the shareholder at the time of purchasing the shares. Some warrants were returned to the Registrars where the address could not be traced or for any other valid reason.
The dividend warrants were cheques only accepted into current accounts which meant that shareholders without current accounts were deprived of the benefit of dividends leading to an accumulation of unclaimed dividends. In addition, there were issues of change of address, change of name, and signature, especially as a result of a change in the marital status of females. Effecting these changes required some paperwork and time. Moreover, communication was limited and the awareness level was low. Some people just bought shares, especially during Initial Public Offers, and stopped at that thereby limiting their access to the full benefit of their investment. On the whole, the entire system was inefficient considering the limitations of analogue record keeping.
Ultimately, the Registrars bear the bulk of the blame for the lapses in record keeping and updating of data of shareholders. Moreover, some Registrars have made the process of claiming dividends even more cumbersome with the introduction of unnecessary protocols such as mandatory forms for shareholders to indicate the reason their dividends were unclaimed, share transfer forms from a Stockbroker, completion of new e-dividend mandate forms for every time a different Stockbroker is used, etc. These protocols create bottlenecks in the process of claiming unpaid dividends. Considering that most Registrars are either owned or affiliated with Financial Institutions, one wonders if some of the actions of Registrars are not deliberately calculated to delay payment of dividends for profit. The Author writes from personal experience.
The way forward
While the creation of digital platforms is commendable, it is not enough to address the problem of unclaimed dividends unless it is properly deployed and harnessed to achieve the purpose. Below are some recommendations on how to address this perennial problem of unclaimed dividends in Nigeria.
- Application and enforcement of the law on unclaimed dividends.
- Harmonization of data – investors and service providers (registrars, banks, and brokers) and the creation of a single contact point for shareholders to minimize unnecessary form filling.
- A functional regulatory framework for all relevant service providers in the system with incentives and penalties where necessary.
- Targeted enlightenment and awareness campaigns to create awareness in collaboration with other institutions like NGOs, Schools, Faith-based institutions, etc.
These will now be discussed serially.
Dividends are a creation of law and are regulated by law. Thus, the applicable laws should be enforced to address the problem of unclaimed dividends. The Companies and Allied Matters Act, 2020 provides that dividends are special debts due to and recoverable by shareholders within 12 years provided such dividends have been declared by a company. Secondly, the Act provides that dividends that are unclaimed after 12 years should be included in the profits that should be distributed to the other shareholders of the company.
Thirdly, where dividends remain unclaimed, the company is mandated by law to publish the list of unclaimed dividends and those entitled to such dividends in 2 national newspapers. The newspaper publication shall then be attached to the subsequent notice of meeting sent to the shareholders for each subsequent annual general meeting. After 3 months of publication in the newspaper, the company may invest the unclaimed dividends in investments outside the company but shall not be liable to pay interest on it unless there was an omission on the part of the company to send the dividend to a shareholder. By the foregoing provisions of the law, companies are expected to take certain steps regarding unclaimed dividends which if adhered to will help to reduce the amount of unclaimed dividends on record.
An audit of the current list of unclaimed dividends is necessary to ascertain those that have become ‘stale’ based on the legal life span of 12 years. This category of dividends should be expunged from the list of unclaimed dividends and applied toward the purpose stated by law. A periodic audit exercise should be undertaken to keep the unclaimed dividend list hosted on the SEC website updated. The relevant regulators of companies, especially the Corporate Affairs Commission and the SEC should ensure that companies comply with the provisions of the law. Dividends should not remain unclaimed in perpetuity.
The second point stated above is the need to harmonize data and create a single contact point for shareholders and investors to minimize unnecessary form-filling. The current process to claim dividends is archaic and cumbersome for the present digital age. The system is fraught with too many bottlenecks to be efficient and this needs to change if the desire to change the narrative about unclaimed dividends is genuine. Despite the Electronic Mandate Management System, there is not much difference in the process of claiming dividends. Registrars still request additional documentation which ridicules the idea of having Bank Verification Numbers (BVN).
The primary issue regarding claims for dividends is the verification of the identity of the person claiming. This should not require unnecessary forms where the data of shareholders are simply repeated. Once a person has completed a form showing a BVN, that should suffice to identify him or her. Addresses were necessary when dividend warrants were posted. With BVN and NIN as valid means of identification, addresses should no longer be a mandatory requirement to process dividend requests. It should not matter where the investor lives so long as (s)he has been duly verified. A functional digital system should not take more than 3 business days to treat a dividend claim by persons entitled.
All Capital Market Operators (CMO) including the Central Securities Clearing System (CSCS), Stockbrokers, Banks, and Registrars should be able to access data to verify the identity of shareholders who are entitled to be paid dividends. An investor who opens a stockbroking account with a licensed Stockbroker should not need to complete separate forms with other CMOs. Every information required to process and pay dividends directly to bank accounts should be provided by the Stockbroker and there should be synergy between the CMOs. Many investors have bought shares through brokers that no longer exist and they don’t know where to go or how to go about claiming dividends. This would not be the case if the CMOs operate harmoniously with the Stockbrokers being the first line of contact.
Coming to the third point highlighted above, there is a need for a functional regulatory framework and system to keep CMOs on their toes. Currently, it appears the Registrars and Stockbrokers are unregulated. There seem to be no clear guidelines on customer service standards for operators in the Capital market space. This needs to change for service providers to improve. Some Registrars have staff who are not well-trained and equipped to handle cases. A cue can be taken from other regulators like the Central Bank of Nigeria and the Nigerian Communications Commission. When Banks and Telcos are sanctioned, the sanctions are made public. This serves to deter other service providers from infractions and helps people make better choices of service providers based on the track record of service delivery.
There should be synergy between the relevant regulators to create a formidable system that checks infractions. Erring CMOs should be sanctioned and there should equally be a reward system. A good example of a reward system is the practice of the Federal Inland Revenue Service (FIRS) in recognizing tax-compliant companies periodically. This motivates companies to meet their obligations as they fall due. In the same vein, if CMOs are penalized or publicly commended, it will help to improve performance and ultimately boost investor confidence in the market. Also, there should be a well-organized and efficient framework for channeling and resolving complaints by investors. The SEC should have a functional complaint-handling desk or portal manned by trained personnel to handle complaints against CMOs expeditiously and professionally. Investors should not be at the mercy of the service providers in the Capital Market. CMOs should be given Performance benchmarks relating to customer complaint resolutions.
The fourth and final point is a very important aspect of the solution to curbing the incidence of unclaimed dividends: the need for continuous investor education, sensitization, and enlightenment. Many people start investing without understanding the basics. With the aid of technology, many more people now have access to investment platforms and the market is accessible to a larger number of people but the level of enlightenment still leaves much to be desired. A good number of those who invest in the stock market are not adequately informed and so they are in the dark about their rights, obligations, and entitlements. Nairametrics recently reported the plan by the SEC to organize investor clinics to reduce unclaimed dividends[iii]. Such clinics should also be done in conjunction with NGOs, Faith-based organizations, Schools, and CMOs to get good participation. These enlightenment campaigns should not be one-off but undertaken periodically to sensitize people on what they need to know about the stock market and how they can participate and benefit.
Conclusion
The huge outstanding amount in unclaimed dividends in Nigeria is an indication of a systemic failure. It portends a bad signal for investment and needs to be addressed as a matter of urgency. With technological advancement and the strides attained in the area of identity management so far, issues like claiming dividends should be seamless. It is believed that if the points highlighted in this piece are diligently implemented, the amount and incidence of unclaimed dividends will be significantly reduced.
Teingo Inko-Tariah, Esq. is a Governance & Compliance Professional interested in Consumer Protection. She is the Founder of Accord Legal Practice. She can be contacted at teingoi@yahoo.com
[i] See Premium Times Report at https://www.premiumtimesng.com/business/162813-unclaimed-dividends-hit-n50-94-billion-2013-official.html?tztc=1 accessed on April 4, 2024.
[ii] See Nairametrics Report at https://nairametrics.com/2024/03/07/sec-plans-investor-clinics-in-2024-to-reduce-n190-billion-unclaimed-dividends/ accessed on April 4, 2024.
[iii] See (ii) above.
Legally Yours 