Faegre shoots down FSA's take on Prospectus Directive's '100' rule

US firm Faegre & Benson has a played an instrumental role in successfully challenging the Financial Services Authority's (FSA) interpretation of the '100 persons rule' in the new Prospectus Directive.

After intense lobbying by the Quoted Companies Alliance (QCA), the Assoc-iation of Private Client Investment Managers (APCIM) and the London Stock Exchange, the rules, which could have required almost every AIM company to have their investment documents approved by the UK Listing Authority (UKLA), have been relaxed.

The Prospectus Directive requires companies listing on AIM to produce a prospectus approved by the UKLA if an offer is made to more than 100 investors (other than professional investors).

Prior to the Prospectus Directive being amended, the FSA treated approaches to discretionary private client brokers as approaches to their individual clients; therefore, companies using such brokers would have been viewed as making an offer to more than 100 investors. Consequently, these companies would have been required to produce a UKLA-approved prospectus.

But now, thanks to the inclusion of Section 86(2), a company no longer needs to prepare such a document just because shares are placed with discretionary private brokers.

Faegre partner Donald Stewart, who advised the QCA and the APCIM, said: "As AIM companies rely on discretionary private client brokers as a significant source of funds, the 100 persons rule could have caused the most damage to AIM and would have fundamentally undermined the role of the nominated adviser."

Stewart instructed Martin Moore QC of Erskine Chambers to help interpret the rules.

The Prospectus Directive will come into force on 1 July.