SECP proposal: Unclaimed share dividends will move to a special fund after five years

Unclaimed dividends worth Rs6.7 billion lying with listed companies.

KARACHI: Share dividends not claimed for five years will be transferred to a government fund according to a proposal to deal with billions of rupees in liabilities carried by publicly listed companies, said the Securities and Exchange Commission of Pakistan (SECP).

The SECP and the Ministry of Finance have suggested amendments in the Companies Ordinance 1984 and the Insurance Ordinance 2000 that will vest unclaimed dividends of such shareholders with the federal government, it said.

Amendments in the ordinances will require an Act of parliament and at least one parliamentarian, who heads a listed company, to push the proposal.

“Many companies including ours are sitting on millions in cash that we cannot touch,” said Isphanyar Bhandara, CEO of Murree Brewery and a member of National Assembly. “It’s better to use this money somewhere else.”

According to financial statements of the listed firms for 2013, the accumulated balance of unclaimed dividends is approximately Rs6.7 billion. Around Rs4.12 billion of this is lying with just 12 companies, according to the SECP.

However, not all the unclaimed dividends have been lying untouched for years.

“While some of the amount classified as unclaimed dividend may be stagnant, the entire amount is not necessarily stagnant as many shareholders keep reverting to the companies for payment,” it said in response to questions sent by The Express Tribune.

As per the Companies Ordinance, the dividend once declared becomes debt of a company and must be paid to its shareholders within 30 days of declaration.

Companies continue to deliver declared dividends to the registered address of a shareholder even if someone has migrated or passed away. But the amount of unclaimed dividend continues to rest with the company as a liability.

Even if laws are amended, it remains unclear how exactly the money will be utilised. In India, the dividends not claimed for seven years are transferred to the Investor Education and Protection Fund. But that draws protest from shareholders who believe the money is siphoned off by bureaucrats for useless activities. Bhandara says companies are more than happy with silently sitting on all the cash. “Think about it. How bad could it be when I have got Rs20 million in unclaimed dividends and I can earn interest on that year after year?”



He has raised the subject on the assembly’s floor. “My suggestion is that our country is cash-strapped and the government should use this money for something productive. It should be distributed among charities after a certain time.”

Another of his proposal is to move this money to a special government account if the dividend is not claimed for three years. From there, the dividend can be claimed only after paying a penalty.

The SECP has also issued the procedure for direct credit of cash dividends into the shareholder’s account. The mechanism eliminates the requirement of printing, dispatch, deposit and realisation of dividend warrants, the securities regulator says.

But it is up to the shareholder to use this facility. “SECP is making efforts to encourage shareholders to opt for the same.”

Many individual shareholders in Pakistan are not lured by the dividends. They invest in securities of small but actively traded companies rather than those fluctuating in share prices.

With little understanding of market dynamics, they follow tips to decide when to buy a share. And when the price goes down, shares remain locked in drawers for years until it crawls up to that purchase price.

Some market participants say that in the absence of any legal framework to deal with the unclaimed dividends corrupt minds have a field day.

“Anyone can be hired to pose as a next of kin of a long dead shareholder. The undeclared dividend is shared 50/50 and everyone is happy,” said a senior official of a listed firm.

Published in The Express Tribune, January 2^nd,  2015.

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