The Nigerian Stock Exchange (NSE) recently announced that it would soon begin the enforcement of the statutory five percent sanction on firms that fail to pay dividends to their shareholders within the period specified at the Annual General Meeting (AGMs) at which such dividends are declared. The sanction is the outcome of certain amendments to the listing rules which were approved by the capital market regulator, the Securities and Exchange Commission (SEC), last month.
SEC Rule (2013) Part B, Rule 44(1) on payment of dividends imposes an obligation on issuers to ensure payment of dividends to shareholders not later than seven working days after the AGM at which the dividend was declared. Besides, Rule 601(7) of the SEC Rules provides for administrative sanctions as well as empowers the SEC to impose fines for non-compliance with its rules and regulations.
We welcome this plan for obvious reasons. First, it will encourage a change in the glaring disregard of the firms for their responsibility to promptly pay dividends to their shareholders. It will be a deterrent to this unethical conduct and further strengthen investor protection framework in the country. The onus now rests on shareholders to behave like true owners of the companies in which they have shares, and insist on prompt payment of due dividends in accordance with this regulation.
According to the NSE’s Head of Legal and Regulation Division, Ms. Tinuade Awe, the sanction is not new. It is part of the Exchange’s existing listing requirements, which every issuer agreed to before its shares were approved for listing on the NSE. Although the undertaking reportedly sets out the obligations of issuing companies, many of them have repeatedly defaulted on dividend payment, often cashing in on the ignorance of shareholders about their rights.
If strictly enforced, this sanction will sanitise the stock exchange and make listed firms responsible to their obligations, in line with Section 14 of the General Undertaking. Specifically, Section 14(e) provides that failure of a listed company to pay dividend on the due date “shall attract a fine of five percent of the total dividend amount declared.”
In recent times, there have been reports of quoted companies defaulting in rendering their statutory audited accounts. Last year alone, 96 firms were found to have subverted the rules guiding their operation in the capital market. According to NSE regulations, listed companies are required to file their quarterly accounts within 45 days after the end of each quarter. This is in accordance with Appendix 111 of the listing rules. This could mean weak regulation and laxity in enforcing the rules by the regulatory authorities.
For instance, in 2013, the Federal Ministry of Finance revealed that 350,000 incorporated companies in Nigeria had consistently failed to file their tax returns to the Federal Inland Revenue Service (FIRS).This shows the extent that many registered companies in the country go to shortchange government on tax payment. It is in the same way that many listed firms default in payment of dividends to their shareholders.
While we commend NSE and SEC for their efforts to sanitise the capital market, far reaching measures should be put in place to minimise the accumulation of unclaimed dividends which, by last year, stood at N60 billion. Even though the challenge of our postal system is partly responsible for this, we suspect that there are people and institutions profiting from unpaid dividends.
If our capital market is to be reckoned with and seen as the hub for investors, its operations must be transparent, while the regulators must be up and doing. Failure to enforce relevant rules may erode public confidence which is the cutting edge in any economy.
This is more so when the securities market is expected to assist businesses in sourcing long-term funding for their operations, and provide a veritable avenue for the sale and purchase of stocks, bonds and mutual funds.
While attempting to enforce the right of shareholders to receive their dividends within the period stipulated by the law, the capital market must also move against the deliberate posting of expired dividend warrants to shareholders by listed firms. This unethical practice is a serious offence and should be treated as such. This is the only way to send a strong message to issuing firms that such practices will no longer be tolerated in the capital market.