Why change of name is a major cause of high unclaimed dividends

Mrs Sarah Olushola is one of many Nigerians who invested in the stock market during the boom era and just forgot about their investments following the disappointing market crash in 2008. 

Though she forgot her investments, the dividend from the companies she invested in has been accumulating for years, thereby adding to the high backlog of unclaimed dividends in the Nigerian capital market. 

What is so peculiar about Olushola’s case is that her parents purchased those shares for her when she was still in university. This was before she got married. The implication of this is that before she could assess the accrued dividends, she must go through the processes required for a name change. 

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Unfortunately, Mrs. Olushola like many Nigerian women has experienced challenges and continues to face challenges with the name change process. And the issue is a major contributor to the growth of unclaimed dividends. 

It’s a challenging experience: Speaking to Nairametrics, Olushola said it has been a harrowing experience for her going from one registrar to the other trying to resolve the change of name issues for the unclaimed dividends. She added that the requirements are very demanding and that some of the registrars are making the process which is supposed to be seamless difficult even after one meets the requirements. She said: 

• “I have been going from one registrar to the other for six months now and have not been able to complete the process. One of the reasons is that the registrars of companies are in different locations and it requires money and time to be able to locate them in a congested state like Lagos. Also, some registrars apply delay tactics to deliberately frustrate and deny investors’ efforts to get their benefits through various schemes.” 

Registrars have been blamed: Mrs. Bisi Bakare of the Pragmatic Shareholders Association of Nigeria (PSAN), said some registrars are making the process difficult for her female members. 

• “When you get married as a woman changing your name to reflect your husband’s name is a difficult process, registrars are making the filing process difficult for some of them and it is not supposed to be so in a society where investors need to be encouraged.  
• “And again, SEC should monitor the activities of the registrars, by knowing how many e-dividend mandate forms were signed for in a particular period, check the names on the forms and find out if such names are still among unclaimed dividends,” she said. 

The Director-General of the Securities and Exchange Commission, Lamido Yuguda, recently confirmed that some registrars are unwilling to release shareholders’ unclaimed dividends in their custody. 

Yuguda said the registrars had employed several antics to frustrate shareholders from enjoying the benefits of the Electronic Dividend Mandate Management System. 

He added that capital market operators must uphold the integrity of the capital market to foster investor confidence as investors are the greatest assets any capital market has. 

The current state of unclaimed dividends: Quarterly reports by SEC show that the value of unclaimed dividends rose from N37 billion as of December 2010 to N180 billion at the end of 2021. This represents a 386.48% increase in the past 11 years despite measures put in place by the SEC to checkmate the rise. 

• Dematerialization, which involves converting share certificates from physical to electronic form, has not helped much. The failure of registrars to fully adopt the electronic processing technology is another disincentive to market investors. 
• The move has, instead of boosting transaction processes, heightened delay, accompanied by irregularities that also encourage fraud, with attendant loss of share certificates, delay in receipt of dividend warrants, a notice of meetings, and companies’ annual reports. 

Other causes of unclaimed dividends: Besides the challenge highlighted above, there are other factors responsible for the increase in unclaimed dividends.  

• For instance, when a shareholder dies and there is no information about their next of kin, it becomes difficult to pay such shareholders their dividends. 
• There is also the problem of multiple applications by shareholders during the investment process and of course, the deliberate actions of some registrars to deny investors their benefits through various schemes. 

Experts weigh in: Speaking to Nairametrics, the Managing Director of Crane Securities Limited, Mr Mike Eze, traced the genesis of the rising wave of unclaimed dividends to the indigenisation era of the administration of General Yakubu Gowon. According to him;  

• “During the indigenisation exercise, those in positions of authority who had the wherewithal acquired shares in the privatised companies with fictitious names of their drivers, cooks, gardeners, dead brothers, dead fathers etc in such a way that when the dividends came, they were not able to claim them why because there are no such persons to claim such.”   

In his remark, the Managing Director of Highcap Securities Limited, Mr David Adnori, also agreed that the problem started during the indigenisation exercises when several shareholders made multiple subscriptions in fictitious names whose signatures they cannot remember. 

He noted that the affected shareholders also failed to open bank accounts in these fictitious names for the purpose of e-dividend collection.   

He added that most of the unclaimed dividends were statute barred and forfeited to the companies in which case recovery by the affected shareholders may not be possible in the absence of means of identification.  

• Speaking further, Mr Adnori noted that “the reason why the number of unclaimed dividends is going higher is that a lot of investors have not mandated their accounts.  
• “Dividends are now distributed electronically, so dividends go directly into the investors’ account and if everybody mandates their accounts there would be little unclaimed dividends in the system.  
• “SEC has invested a lot of resources and has embarked on a number of programmes on investor education to ensure that people mandate their accounts.  
• “This process is still open and can be done with the registrars, forms can be obtained from the banks too and it’s a very simple process. We also have on our website a tool that assists the investors to determine any unclaimed dividends that they have.” 

Shareholders’ voices: The National Chairman, PSAN, Mr. Boniface Okezie, in a chat with Nairametrics said SEC needs to create more awareness. 

• He called on the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) to collaborate with market operators for a better-structured public awareness campaign about multiple subscriptions and how to curb unclaimed dividends. 
• Okezie said there was a need for a better structured public awareness campaign to be jointly anchored by NSE, SEC, and market operators for the education of shareholders and the protection of their interests, especially the small investors. 

The National Coordinator of the Independent Shareholders Association of Nigeria (ISAN), Anthony Omojola, said a lot needs to be done to curb the rising unclaimed dividend. 

He explained that as long as companies continue to declare dividends, the unclaimed dividends will be rising, however, it’s rising should be seasonal as to the periods when most companies declare them. He said: 

• “The registrars should be updating their records from time to time and be willing to release the dividends as and when due. The surveillance unit of the SEC should step up their checks on the registrars for compliance. Some registrars still take up to two to three weeks before effecting payments of outstanding dividends after receiving completed e-mandate forms. Companies should also be advised to direct their registrars to print a readable list of outstanding dividends not only displayed on their website and that of their registrars but the list must also be printed and made available to notable Shareholders groups and big stockbroking outfits.” 

Omojola noted that each company, especially those with outsourced company secretaries, must have investor relations units manned by competent officers to liaise between the companies and their registrars to quicken the process of dispute resolution. 

• “Another area is the issue of administration of the estate of the deceased. What the registrars are charging for verification of legal documents and processing is exorbitant and should be looked into to ease the process of probate etc. In the longer solution, many shareholders are not investors. Such shareholders buy between two to 10 units to attend annual general meetings (AGMs) and collect gifts for themselves and members of their families. They do not bother about the meager dividends coming to them because of the small number of shares they have,” he said. 

Resolving unclaimed dividends issues: SEC is currently leading the capital market in implementing the 10-year Master Plan initiatives, which include a recapitalization exercise to strengthen market institutions, dematerialization of share certificates, e-dividend with collaboration from Central Bank of Nigeria and NIBSS, and collaboration with the National Assembly towards legislations that will boost Nigeria capital market. 

• Yuguda speaking during the launch of the revised Capital Market Master Plan in Lagos last week said the e-Dividend Committee notified of efforts to rebuild the E-Dividend Management Mandate System (e-DMMS) platform. 
• According to him, this involves having a centralized submission of E-dividend mandate forms, an Application Programming Interface (API) for Banks and Registrars, and a revamped web interface among others. 
• Fundamental changes are the needed tonic that will bring growth and development in the market through the master plan. This is why the issue of identity management, which has been a problem, not just in the capital market, but in many sectors of the economy, needs to be addressed to aid the achievement of an efficient and vibrant capital market and the general economy. 
• Addressing the issue of identity in the capital market would not only help tame the issue of unclaimed dividends but, to a large extent, curb identity theft in the local bourse and give more access to credit facilities. 

Other efforts by the regulator to solve the problem include continuous financial literacy, the adoption of technology-managed IPOs, e-dividends, and biometric capture as part of Know Your Customer, among others. 

The way forward: In addition to the various attempts by SEC to resolve unclaimed dividends and restore investors’ confidence, we recommend that the regulator should also consider more innovative technological initiatives. 

• For example, by leveraging on artificial intelligence and data analytics, software developers can write programs that can utilize biometrics to identify owners of shares either via inheritance or direct ownerships. 
• Registrars should also be mandated through legislation to digitize their entire historical records providing sector players with a foundation to create more tools that can enable the power digital identity.  
• In today’s world everyone has a digital footprint which can be traced back to history.  
• Finally, the unclaimed dividends that are not subject to dispute or identity claims can also be capitalized and invested in profitable assets, where the proceeds should compound accordingly.   

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