The one thing most shareholders eagerly await after investing in a company is dividends, which represent that portion of the company’s profits recommended by the directors and declared by the members for distribution among shareholders in proportion to their respective shareholdings.
It is the tangible reward for the risks assumed by investors and, for many, the ultimate justification for committing capital to a business.
It would therefore appear unusual that money deliberately set aside to reward shareholders could remain untouched. Yet, this happens more often than many may imagine. Companies sometimes declare dividends which, despite being available for payment, remain unclaimed by the very persons entitled to receive them.
The reasons are as varied as they are common. A shareholder may have relocated without updating the company’s records. Another may have died, leaving behind beneficiaries who are unaware of the investment. In some instances, the amount involved may appear insignificant and is therefore ignored, while in others, simple administrative lapses prevent payment from reaching the rightful owner.
Whatever the reason, the law does not permit companies to hold on to unclaimed dividends indefinitely. Neither does it allow such monies to become part of the company’s profits simply because the shareholder has not come forward to claim them. Instead, the Companies Act, 2019 (Act 992) establishes an elaborate statutory framework that regulates how unclaimed dividends are to be held, who is responsible for safeguarding them, the period within which they may be claimed, and ultimately, what becomes of them if they remain unclaimed for several years.
Legal Nature of Dividends
Once a company has lawfully declared dividends, those dividends acquire a special character. They are no longer simply part of the company’s accumulated profits. They become money due to shareholders entitled to receive them. The company therefore holds an obligation to pay, while the shareholder acquires a corresponding right to demand payment.
Thus, although the company may physically possess the money, it does so only as a temporary custodian of funds belonging to another person.
Treatment of Unclaimed Dividends
Section 73 of Act 992 provides the first stage in this legal process. Where a dividend declared by a company remains unclaimed for three months, the company is required to open an interest-bearing unclaimed dividend account and transfer the total amount of the unclaimed dividend into that account.
The obvious importance of this requirement is to ensure that money belonging to shareholders is separated from the company’s ordinary finances. The dividend is effectively placed in a protected space where it can remain preserved until the rightful owner comes forward.
If the dividend remains unclaimed for a further twelve months after being transferred into the company’s unclaimed dividend account, section 73 requires the company to transfer the amount, together with accrued interest, to the Registrar of Companies.
Role of the Registrar of Companies
Once transferred, the Registrar becomes responsible for safeguarding the funds in an interest-bearing account established for that purpose. This transfer, however, does not mean that ownership of the money has shifted from the shareholder to the Registrar or the State. The Registrar merely becomes the new custodian of funds that still belong to the shareholder.
The law also recognises that one of the greatest obstacles in recovering unclaimed dividends is information. Sometimes the problem is not unwillingness to pay but the inability to locate the person entitled to receive payment. For this reason, the company is required to notify the shareholder, or the estate of the shareholder, at the last known address that the dividend has been transferred to the Registrar.
The Registrar is also required to publish annually, in the Companies Bulletin and in a daily newspaper of national circulation, details of shareholders whose dividends have been transferred into the Registrar’s custody. The objective, it may be argued, is to create a pathway through which forgotten wealth may eventually find its way back to its rightful owner.
Importantly, the law preserves the shareholder’s right to recover the dividend. A shareholder, or the estate of a deceased shareholder, who provides satisfactory evidence of entitlement may claim the dividend and the interest accrued during the period that the company and the Registrar held the funds.
The Seven-Year Rule
The position becomes more complex after the expiration of seven years. Under section 74 of Act 992, the Registrar is required to keep unclaimed dividends for seven years. At the end of that period, the law directs that fifty percent of the money in the account be transferred into the Consolidated Fund, while the remaining fifty percent is to be used for investor education, research, entrepreneurial development and the advancement of company law.
Therefore, dividends which remain unclaimed for a prolonged period would not remain permanently dormant. The law requires it to be channelled to contribute to broader objectives that strengthen investment awareness, entrepreneurship and corporate development.
Conclusion
The law on unclaimed dividends is perhaps most important for the lesson it teaches. The law does not forget a single penny to which a shareholder is entitled. Neither does the company nor the State. Ironically, the only person who may lose track of that entitlement is the shareholder himself or herself.
The clock begins to run once dividends are declared and remain unclaimed. Although the law provides an opportunity for shareholders, or their estates, to recover such dividends, failure to act within the statutory period of about eight years and three months means that the funds will eventually be dealt with in accordance with the provisions of Act 992.
Shareholders must therefore ensure that their records with companies are updated, keep track of their investments, and ensure that their families are aware of such investments.
