France's highest appeals court has ordered Christine Lagarde, the head of the International Monetary Fund (IMF), to stand trial over her role in a massive state payout in 2008, when she was the French finance minister.

The court dismissed on Friday Lagarde's challenge against a judge's order in December to try her for negligence in her handling of a dispute between a state-owned bank and controversial business tycoon Bernard Tapie.

Tapie walked away at the time with $445m of taxpayers' money in compensation after Lagarde ordered the long-running row over the sale of his stake in sportswear giant Adidas to be resolved by arbitration.

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Lagarde's lawyer Patrick Maisonneuve expressed regret over Friday's decision, saying he was "convinced" that Lagarde would be "absolved of all responsibility".

IMF spokesman Gerry Rice said that its executive board had been briefed on the matter and continued to have confidence in Lagarde's capacity to carry out her functions.

IMF chiefs on trial

Lagarde, 60, will be the third successive IMF chief to face trial.

Her predecessor, compatriot Dominique Strauss-Kahn resigned from his IMF post in 2011 to fight sexual assault allegations in the United States.

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Spain's former IMF chief Rodrigo Rato has also been ordered to stand trial for misusing funds when he was head of Spanish lender Bankia.

Al Jazeera's David Chater, reporting from France's capital, Paris, said Lagarde, if convicted, could face a maximum penalty of one year in prison and a fine of 15,000 euro.

"The question now is what will she do - will she copy Strauss-Kahn's example and stand down while she tries to clear her name?" Chater said.

"That is the main question being asked in Paris at the moment."

Long-running row

Friday's ruling means Lagarde will go before a special tribunal that hears cases against government ministers accused of wrongdoing in the discharge of their duties.

The row goes back to when Tapie sued the state for compensation after selling his stake in Adidas to Credit Lyonnais in 1993. He claimed the bank had defrauded him after it later resold his stake for a much higher sum.

The case against Lagarde stems from her decision to allow the row be settled by arbitration instead of by the courts, which would likely have resulted in a much smaller bill for the state.

Prosecutors have also questioned her failure to challenge the massive award.

A court has since found the arbitration to be fraudulent because one of the arbitrators had links to 73-year-old Tapie, a controversial figure who served as cities minister in the 1990s and has also dabbled in acting.

Lagarde has denied any wrongdoing or that she acted on orders from then president Nicolas Sarkozy, of whom Tapie was a supporter.

The ruling comes just days after Lagarde, who has long been touted as a potential future French president, began her second term as head of IMF.

Source: Al Jazeera and agencies