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Coronavirus withholds N600b investors’ dividends

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By Taofik Salako, Deputy Group Business Editor

More than N600 billion dividends are being held back by the national scare created by the pandemic Coronavirus (COVID-19) as companies postponed crucial meetings during which final approvals for dividend distributions were to be given.

The Nation’s investigation at the weekend indicated that the seeming national lockdown, restrictions on public gathering and ‘stay at home’ precautions that are part of the national emergency response to the continuing spread of Covid-19 have stalled the processes for the payment of previously declared dividends and declaration of new dividend recommendations.

Not less than N600 billion dividend payouts may be affected if the restrictions continue and companies cannot hold crucial meetings.

Extant rules guiding operations of companies require the board of directors to meet and decide on possible corporate actions, including recommendation of dividend payment for consideration of shareholders at a general meeting.

Listing and regulatory rules at the capital market also require all quoted companies to submit their annual audited report and financial statement, which traditionally includes final dividend recommendation, not later than 90 days after the end of the financial year. More than 85 per cent of quoted companies, including all banks, insurers, major manufacturers, oil and gas companies and conglomerates use the Gregorian calendar year ending December 31 as their business year. Thus, the deadline for the submission is today.

A review of regulatory filings and corporate actions at the weekend showed that all companies that had scheduled board or general meetings in the immediate period have postponed the meetings indefinitely. The reasons were the same: Coronavirus and resultant precautions of social distancing, restrictions on public gathering and logistics.

Lagos State, the national commercial nerve centre, where most meetings usually hold, is also the epicentre of the Covid-19. The state government has shut down schools, markets, social joints and put a restriction of not more than 25 persons on public gathering, automatically closing down large-group assembly like churches, mosques, parties and annual general meetings.

The boards of directors of Total Nigeria Plc and MRS Oil Nigeria Plc, which had scheduled their meetings for last week, were the latest to postpone their meetings citing Covid-19 and the need to maintain social distancing. Also, companies, such as Africa Prudential Plc, Transnational Corporation of Nigeria and United Bank for Africa, which had scheduled their general meetings for last week were forced to postpone the meetings.

With the disruptions caused by the Covid-19, both the Nigerian Stock Exchange (NSE) and Securities and Exchange Commission (SEC) have extended the deadline for submission of annual report and accounts by 60 days, till May 29, thus extending the waiting period for shareholders.

President, Association for the Advancement of Rights of Nigerian Shareholders (AARNS), Dr. Faruk Umar, said companies should find creative ways to ensure shareholders receive their dividends without necessarily breaching the provisions of extant laws.

According to him, one way to go about this is to convert the final dividend into interim dividend, which only requires regulatory approval and not approval of shareholders at general meeting.

“The second option is for Securities and Exchange Commission and the Nigerian Stock Exchange to speed up the implementation of electronic AGM where shareholders can connect to the venue of the meeting electronically as it is done in some countries.The third alternative is what Guaranty Trust Bank has done by deciding to conduct the meeting through proxies while complying with the directive of Lagos State Government,” Umar said.

He suggested that banks should consider converting each shareholder’s dividends to an interest-free loans and advance such to the shareholder, pending the conduct of AGM, when the dividends will be appropriately used to liquidate the loans. Such loan disbursement and repayment could be done through the registrar, who traditionally oversees distribution of dividend payment, he added.

Founder and Managing Partner, Imperial Law Office, Afolake Lawal said the Covid-19 crisis has led to an unprecedented situation that requires creative approach to balance the responsibilities of the boards of directors to shareholders with the dictates of extant laws.

According to her, to manage the  crisis, the board can elect to declare an interim dividend instead of a final dividend, especially if the final dividend will not be paid on the target date as a result of being unable to hold the routine AGM or altogether elect not to pay dividend.

“Bear in mind that companies have a 15-month period between AGMs. So I think most companies with December year-end can still push their AGMs forward further for three months, and still be within that timeframe. And if the situation requires, you can expect that some boards will make representations to the Corporate Affairs Commission (CAC) for a further three-month extension to hold their AGM. Boards can also approach the courts to give further direction on when it will be appropriate to convene their AGM, in view of the impracticality of holding one within this period. We have guidance from the combined reading of sections 213(1)(b), 223 and 379(2) of the Companies and Allied Matters Act on how to navigate the present realities,” Lawal said.

Chairman, Ibadan Zone Shareholders Association (IBZA), Mr Eric Akinduro said while the reasons for the postponement of the meetings were quite beyond the control of anyone and were never envisaged, the issue of delayed in dividend payment is a matter of concern to shareholders at this critical time when people are in need of money as a palliative measure.

According to him, dividend declaration is just a part of the entire agenda to be considered at AGM. So it cannot be isolated for payment as directors do not have such power to pay without the approval of shareholders at AGM.

He said converting final dividend to interim dividend will negate the law as clearly stated in CAMA section 379 1 and 2, noting that final dividend is proposed by the board of directors of the company at board meeting and shareholders in the annual general meeting approve such proposal either by accepting the proposed rate or reducing it while interim dividend is a distribution to shareholders that has been both declared and paid before a company has determined its full-year earnings.

“On this condition, it is better to hold on till when the whole situation will be good enough to hold AGM, which I believe, will not take longer time. We need to be very careful on the position of law so that we don’t take any step that will be tantamount to breaking law,” Akinduro said.

Shareholders’ leader, Chief Sola Aboderin said capital market regulators should explore the ‘doctrine of necessity’ to ensure payment of dividends to shareholders.

“I am not happy that AGMs are being postponed and dividends are not being paid. We need dividends now, that is why AGM must be held.  SEC can use the doctrine of necessity to temporarily amend the rules of AGM,” Aboderin said.

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