The shareholders of Oando Plc could be on the hook to return the dividends it wrongfully paid out of profits going by the provisions of the Company and Allied Matter Act of Nigeria (CAMA). Auditors of Oando Plc Ernst & Young had in the company’s 2014 annual report confirmed that Oando had contravened section 379 of CAMA
“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, Sub section 5 of the act states that “Subject to the provisions of this Decree, dividends shall be payable to the shareholders only out of the distributable profits of the company”
Whilst the act does not reveal any penalties for Oando, section 386 of the act does suggest that the shareholders of the company who received the dividends may have to refund that dividend to shareholders.
386. Liability for paying dividend out of capital
(1)All directors who knowingly pay, or are party to the payment of dividend out of capital or otherwise in contravention of this Part of this Act, shall be personally liable jointly and severally to refund to the company any amount so paid
(2) Such directors shall have the right to recover the dividend from shareholders who receive it with knowledge that the company had no power to pay it.
If our interpretation of the act is correct, large shareholders who own board positions in the company may be required to refund the dividend. How that refund will be effected is quite unclear as many of the shareholders who received it have surely spent the money. Some analyst inform us that perhaps they may have to refund such dividend from future dividends payout even though they did not explain how that will work.
Oando paid about 70 kobo in interim dividends in 2014 and is thought to have cost the company about N6.3 billion.