Companies are being encouraged to track down the rightful
owners of billions of pounds in unclaimed shares as the government signals that
it wants to transfer such assets to occupational pension schemes.
The Pensions (Unclaimed Assets) Bill a private member’s bill introduced by
Labour MP Frank Field was included by prime minister Gordon Brown in the
latest list of the government’s proposed legislation. It will mean that under
the auspices of a new body, the Unclaimed Assets Agency, companies will have to
transfer assets that have not been claimed after 15 years to members of
occupational pension schemes, typically those qualifying for assistance under
the government’s Financial Assistance Scheme, which offers support to members of
under-funded or collapsed company pension schemes.
However, there is still a provision that the original owners will be able to
reclaim their assets if they manage to track them down at a later date. The
government intends to set up the agency within 12 months.
Currently, a company can take back unclaimed dividends after 12 years, though
most do not. It is estimated that, on average, between 2% and 5% of a company’s
shareholders have either moved from the address to which the company sends
correspondence, or are dead.
Attention has mainly been focused on financial services firms that have
demutualised over the past ten years and whose shareholders have neglected to
pick up what is rightfully theirs. Nearly £1bn in windfall shares belonging to
more than half a million people remain unclaimed.
Time to claim
For example, Scottish Life demutualised in 2001 and has issued a final call
to around 15,000 former members who have yet to claim around £7.5m, with the
minimum payout worth at least £500. Standard Life has 222,000 ex-members who
have yet to claim 83 million shares worth a total of around £261m, amounting to
4.2% of the company. Under company law, investors owning the unclaimed shares a
re also entitled to claim dividends, and bonus shares which were due this July.
The insurer says that “it is neither in the best interests of the individuals
concerned, or the company, for these assets to be lying in trust.”
Friends Provident demutualised in July 2001, but still has an estimated
140,000 policyholders who have yet to make a claim for windfalls worth an
average of £1,200. Unclaimed shares were converted to cash in 2004 and held for
future claimants. Scottish Widows has more than 59,000 untraced members entitled
to unclaimed compensation totalling £153m following the company’s acquisition by
Lloyds TSB in March 2000. Halifax still has unclaimed windfalls worth £158m from
its demutualisation in 1997 and estimates that 75,000 former members have yet to
come forward. The bank sold the unclaimed shares in 2001 and put the proceeds,
plus unclaimed dividends, in a no-interest account where former members have
until 30 August 2010 to claim them.
Les Clarke, managing director at Assets Reunited, a firm that conducts
searches to match people with their shareholdings, says that the need to find
shareholders who have not claimed their assets is being driven by an increased
focus on corporate governance. “Companies are beginning to ask whether it is
good corporate governance to have millions of shares lying dormant because no
one has checked whether the shareholders are still alive or are even aware of
their existence,” says Clarke.
“Not bothering to track the owners of unclaimed assets appears lazy or
complacent and companies cannot afford to look as if they are complacent about
good corporate governance,” he says. Furthermore, sending out company reports
and other correspondence to tens of thousands of people who may have moved or
are dead can also be an expensive waste of time, he adds.
Another pressing reason to reunite shareholders with their assets is the
increased threat of identity fraud. As letters are sent out to shareholders
whose details have not been checked for some time, the system is open to abuse,
“It is not very difficult for someone to assume the identity of a shareholder if
correspondence is intercepted,” says Clarke. “Fraudsters will have access to
personal details and a lot of financial information and besides, not all
companies are going to carry out thorough checks to confirm their identities,”
Companies have an important strategic reason for relocating lost shareholders
they need their votes. According to Clarke, some companies have realised the
benefits of tapping into the support of private investors to help push through
contentious corporate policies, such as fending off hostile takeover bids and
backing potential mergers.
Clarke points out that Marks & Spencer was able to fend off tycoon Philip
Green’s takeover bid in part by garnering together the support of individual
shareholders who might not normally have voted at annual or extraordinary
general meetings. Barclays, however, has not been so lucky in its pursuit of
dormant shareholders to back its acquisition of ABN Amro, he says.
“There have been some recent high profile acquisition targets that have been
made or broken on the back of private investor support or lack of it,” says
Clarke. “Also, companies acquiring target firms do not want to see such large
liabilities on the accounts.”
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