2021 budget: Much ado about unclaimed dividends

Not a few Nigerians were taken aback by federal government’s move to borrow from unclaimed dividends and dormant accounts, especially with the already huge burden on the shoulders of the government and a sizeable chunk of the country’s revenue going into debt servicing. In this report BENJAMIN UMUTEME examines the new policy.

There have been hues and cries from Nigerians when over plans by the federal government to borrow unclaimed dividends.

The move by the government to dip its hands into unclaimed dividends and dormant accounts was mooted considering Nigeria’s need to fund the 2021 budget deficit of over N5 trillion. The executive had proposed to fund the deficit through borrowing.

Finance Act 2020

With the enforcement of the law, federal government is empowered to borrow from the unclaimed dividends and dormant accounts, while proceeds would stand as special credit to the federal government through the Unclaimed Funds Trust Fund contained in the Finance Act 2020, which was recently signed into law by President Muhammadu Buhari.

Part of the law provides that, “Any unclaimed dividend of a public limited liability company quoted on the Nigerian Stock Exchange and any unutilised amounts in a dormant bank account maintained in or by a deposit money bank, which has remained unclaimed or unutilised 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 trust fund.”

According to the law, the monies transferred to the trust fund will be a “special debt owed by the federal government to shareholders and dormant bank account holders.”

The law, however, exempts official bank accounts owned by the federal government, state governments or local governments or any of their ministries, departments or agencies.

The operation of the trust fund would be supervised by the Debt Management Office (DMO) and governed by a governing council chaired by the minister of finance and a co-chairperson from the private sector appointed by the president.

Other members of the governing council include the Governor of the Central Bank of Nigeria (CBN), the Director-General of the Securities and Exchange Commission (SEC), the Managing Director of the National Deposit Insurance Corporation (NDIC), a representative of the registrars of companies, two representatives of the shareholders’ association, a representative of the Bankers’ Committee with the Director-General of the Debt Management Office (DMO) functioning as the secretary of the trust fund.

The law provides that the original owners of the money can claim it at any time.

Unclaimed dividends

Documents by CSL Stockbrokers Limited, Lagos and seen by Blueprint Weekend showed that from 2002 till 2019, a total sum of N158.44 billion stood as unclaimed dividend.

It is worth noting that an unclaimed dividend is recorded when a shareholder fails to claim an already paid dividend while an unpaid dividend is the failure of a company to distribute dividends to shareholders after it has been announced. Shareholders are required to claim dividend within 30 days of when the dividend are declared.

But this has accumulated over the years leading the Security and Exchange Commission (SEC) to create an e-dividend portal to reduce the high incidence of unclaimed dividends. Till date, only about N30 billion out of N154.88 billion backlog of unclaimed dividends which accumulated over a 17 years period.

Stakeholders react

Meanwhile, concerns have continued to grow following the government decision to securitize unclaimed dividends and dormant account balances of up to six years in the country.

The new arrangement according to capital market stakeholders would be counterproductive as regulators and operators in the financial markets have been working together to ensure that unclaimed dividends are reduced considerably.

The Chairman, House of Representatives Committee on Capital Markets and Institutions, Babangida Ibrahim, at a National Assembly investigative public hearing last year, said the issue of huge volume of unclaimed dividends, if not resolved, could adversely affect investor confidence, decrease the availability of long-term capital for economic development, and likely trigger volatility in the regulation of the capital market.

Capital market operators are of the view that rather than support efforts of regulators to ensure that unclaimed dividends get back to the owners are planning to take over management of the funds.

Reacting to the government move to manage unclaimed dividend, Independent Shareholders Association of Nigeria (ISAN), said underground moves to take over the funds must not be allowed, stressing that the government lack 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 Company 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.

“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.

It’s bad omen for govt to manage unclaimed dividends – Expert

Ib his part, financial analyst, Mr Chukwudi Okolo, insisted that the move by the government to manage unclaimed dividends was a bad omen because they have never been good fund managers.

While stating some of the reasons for the rise in unclaimed dividend, he said that value has been on the increase since the market has been witnessing surge in large number of unclaimed shares.

He said “unclaimed dividend is rising because we have a large number of unclaimed shares in the system.”

It’s welcome devt – Operators

Conversely, for some other operator government’s plan to establish a trust fund to manage unclaimed dividend is a welcome development.

Chief Research Officer, InvestData Consulting Limited, Mr Omordion Ambrose, said with the situation on ground it was obvious that with government revenue battered by Covid-19 pandemic there is need to look to other sources to fund the deficit in the budget.

He said effective use of the fund will boost economic recovery and activities that will impact positively on the shareholders, companies, customer and others because a booming or prosperous economy will reflect on investors and consumer confidence.

He said, “The Act has removed the fear of investors losing their unclaimed dividend, now that it made overt that owners or investors can claim their money any time they show up. To me is a welcome development if the fund is judiciously used for the purpose of driving economic development and growth.”

Policy’ll motivate quoted companies, registrars pay dividends.

On his part, the Managing Director, APT Securities and Funds Limited, Malam Garba Kurfi, told our correspondent that the new policy would motivate quoted companies and Registrars to pay dividends as at and when due since such funds would neither be with the registrars nor with the company.

Describing the plan as a welcome development, he said “With no time dividend will be paid to their respective owners who already send their Bank account and BVN to distinguish them from other investors even if they have the same name and address since two people will not have same BVN.”

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