City lawyer's cut-price AIM delisting deal threatens to leave small investors in cold

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City law firm Hammonds has written to advisers of AIM-listed stocks with details of a plan to take companies with a market capitalisation of less than £20 million off the market for only £5000.

Hammonds is unlikely to profit but hopes to attract future work from the firms. But rival lawyers and bankers warn that the Hammonds approach could further damage a market buffeted by recession.

The interests of investors could also be harmed.

There are now barely more than 1500 companies on the junior stock market, down from almost 1700 at the start of last year. The delisted companies typically head to Plus Markets for smaller stocks.

That means that investors who bought into fundraising exercises for young firms are now holding paper that is very hard to sell because the market in the stock is so illiquid.

Earlier this year, actor Sean Bean became one victim of this when Sheffield United, the team he supports and holds a stake in, delisted.

Phil Adams, chief executive at investment bank Altium, was critical of the Hammonds offer. "Many institutional shareholders can't or don't want to hold unlisted paper and are extremely upset about this approach, particularly if they are not offered a fair exit price," he said.

Companies often delist when they find listing requirements become too onerous. Costs of meeting regulatory guidelines can hit £100,000 a year.

AIM said: "Coming to a public market like AIM is a long-term commitment. Firms need to be careful in following advice such as this."

Hammonds did not return calls seeking comment.