Lausanne - The world's top sports court on Friday overturned a European ban imposed on AC Milan for violating UEFA's financial fair play rules, calling the punishment "not proportionate."
UEFA banned Milan from playing in next season's Europa League citing the club's failure to meet the "break-even requirement," which bars clubs from taking on debt to fund daily operations.
But the Court of Arbitration for Sport ruled that "some important elements have not been properly assessed," by UEFA judges.
The court agreed with UEFA's assessment that the club was in breach of break-even rules but found that the "current financial situation of the club was now better following the recent change in the club's ownership."
"The decision.... to exclude AC Milan from the UEFA Club Competition was not proportionate," a CAS statement said.
CAS referred the case back to UEFA as requested by AC Milan, whose executives argued their appeal at the Lausanne-based court on Thursday.
The court "considers that the (UEFA's) Adjudicatory Chamber is in a better position than the CAS Panel to issue a new proportionate disciplinary measure on the basis of the current financial situation of the club," the statement said.
AC Milan have spent a troubled 15 months since they were bought by Chinese businessman Li Yonghong from Silvio Berlusconi in April 2017.
The takeover was partly funded by a high-interest loan of £300 million ($348 million) from American hedge fund Elliott Management.
When Milan failed to make a repayment at the start of July, Elliott moved to take over, a process which is due to be ratified by club shareholders on July 21.
The Chinese owners spent more than £200 million on players last summer and that, combined with the terms of the Elliott loan, triggered the interest of UEFA.
At the end of June, UEFA ruled that Milan were in breach of "the break-even requirement."
AC Milan's managing director Marco Fassone has blamed the club's woes on Berlusconi.
But the Chinese ownership of the club was also clouded by questions over the source of Li's wealth. In October The New York Times claimed that "virtually nobody" in China had ever heard of him.
Elliot, now in full control, has pledged to inject £50 million ($59 million) to bring financial stability to the seven-time European champions.