Auditor Says Oando “Contravened” CAMA By Paying Dividend Out Of Insufficient Reserves

The auditors of Oando Nigeria Plc Ernst & Young in their auditors opinion of the 2014 audited Financial Statement of the company confirmed that the audited accounts gave a true and fair view of the financial statement of the company. However, the auditors did raise an exception to the dividend paid by the company in 2014.

According to Ernst & Young

“the company paid dividend from unaudited reserves as at June 2014. However, as at year-end there was insufficient reserves to absorb the dividend paid. This is a contravention of the provisions of Section 379 of the Company and Allied Matters Act 1990…”

Section 379 of CAMA says;

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(1) A company may, in general meeting, declare dividends in respect of any year or other period only on the recommendation of the directors.
(2) The company may from time to time pay to the members such interim dividends as appear to the directors to be justified by the profits of the company.
(3) The general meeting shall have power to decrease the amount of dividend recommended by the directors, but shall have no power to increase the recommended amount.
(4) Where the recommendation of the directors of a company with respect to the declaration of a dividend is varied in accordance with subsection (3) of this section by the company in general meeting, a statement to that effect shall be included in the relevant annual return.
(5) Subject to the provisions of this Decree, dividends shall be payable to the shareholders only out of the distributable profits of the company

Oando in its 2014 annual report declared that;

directors approved the payment of interim dividend of N0.70k per share in respect of the 2014 un-audited consolidated financial statements.

The dividend was paid to holders of ordinary shares whose names appear in the Company‘s Nigerian and South African Registers of members at the close of the business on 17th November 2014, subject to the applicable withholding taxes.

Dividend of N0.30k was declared by members of the Company at the Annual General Meeting held on 27 September 2014 in respect of the 2013 financial results

An analysts explained to Nairametrics that this essentially means the company paid dividends from reserves (distributable profits) which had not been audited. This could mean that the company was paying dividends from profits which currently do not exist but they believe it will have in future. Unfortunately, the company reported negative reserves as at year-end and thus did not have distributable profits to pay dividends.

It is quite unclear where they got the money that was used to pay shareholders dividends. Whilst it may have been funded from a bank loan, the corresponding book entry will suggest it was drawn from share capital. Oando spent about N9billion in paying dividends in 2014.