IMF's Lagarde on trial: What you need to know

A French court has ordered Christine Lagarde, the head of the International Monetary Fund (IMF), to face trial over her alleged role in a payout to a French tycoon in 2008. If convicted of "negligence" in a public office, the charge against her, she could face up to a year in prison.

Here's what you need to know about why she has been called to trial:

Why is she on trial?

Lagarde has been called to face trial in court over her alleged role in a 404 million euros ($438.5 million) payout to French businessman and one-time politician Bernard Tapie.

Tapie received French government compensation after selling his majority stake in sports company Adidas to a consortium of investors which included the then partly state-owned bank Credit Lyonnais, in 1993.

Christine Lagarde
Dursun Aydemir | Anadolu Agency | Getty Images
Christine Lagarde

Tapie reportedly agreed to the sale to avoid any conflict of interests when he became a minister in the then Socialist government under François Mitterrand, the Guardiannewspaper reported on Thursday. In 1994, however, Adidas was re-sold for 701 million euros to businessman Robert Louis-Dreyfus.

Seeing the much higher amount the company was sold for, Tapie alleged the bank had mishandled the sale and had defrauded him after it later resold his stake for a much higher sum.

So what has Lagarde got to do with it?

After a lengthy legal battle between Tapie and Credit Lyonnais, a French court orders the state to pay 135 million euros to Tapie over irregularities in the sale but this is overturned by France'e highest court.

The legal battle continues however, and in 2007, Lagarde, who is by then the head of the French finance ministry, asks a special arbitration panel to rule on the dispute.

In 2008, the arbitration panel decides that Tapie should receive compensation of the full 404 million euros from the French finance ministry. As Lagarde signed off the payment, Lagarde is now accused of "negligence by a person in a position of public authority" over the compensation case, ITele TV channel reported Thursday.

French police are also investigating whether Tapie received the compensation in return for his support of center-right politician Nicolas Sarkozy in the 2007 presidential election, despite the fact that he had served as minister in a Socialist government.

Pleading innocent

The case will be heard in by magistrates at the Cour de justice de la Republique - which judges government ministers for crimes in office, France's prosecutor general confirmed to CNBC on Thursday.

If convicted of negligence, Lagarde could face a fine of 15,000 euros and up to a year in prison, according to a spokesman at the court, Sylvain Barbier- Sainte-Marie quoted by Associated Press.

The case is being brought despite the prosecutor's recommendation in September that investigations be dropped against Lagarde for alleged negligence, Reuters reported.

Lagarde has dismissed the allegations outright. Her lawyer, Yves Repiquet, told French TV channel iTele that the case was "incomprehensible" and said he would recommend that Lagarde appeal against this decision.

Cloud over the IMF

The case has been a cloud over Lagarde's career and private life, however. In 2013, Lagarde's home was raided by anti-corruption police investigating the case. She was charged with "negligence" last August but said she had no intention of resigning from the IMF. Her current term of office ends next July and, so far, Lagarde has given no indication either way on whether she would seek re-selection.

On Thursday, the IMF reaffirmed its confidence in her leadership. "As we have said before, it would not be appropriate to comment on a case that has been and is currently before the French judiciary. However, the Executive Board continues to express its confidence in the Managing Director's ability to effectively carry out her duties. The Board will continue to be briefed on this matter," the IMF's communications director Gerry Rice said in a statement received by CNBC.

Tapie has not escaped from the re-opening of the case unscathed either. Earlier this month, the tycoon was ordered to pay back the 404 million euros awarded to him (as well as interest on the debt and legal costs) and told Le Monde newspaper that he was "totally ruined" by the court's decision. He is also expected to make an appeal against the repayment.

-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow CNBC International on Twitter and Facebook.