Magic Software Enterprises (Nasdaq:MGIC) has won a claim filed by one of its creditors, the American firm CECG, to buy back shares.

The Tel Aviv District last week ruled in favor of Magic buying back shares in an amount that will not exceed $3 million, which is in line with Magic¿s original plans.

Magic had petitioned the court in September to allow it to buy back shares. The company had to petition for court approval because it did not meet some of the conditions stipulated under the new Companies Law.

The petition included details about its creditors. Magic wrote that its commitments come to $28,000, and that it has $30 million cash (which today is down to $25 million). Accordingly, Magic claimed, there is no risk involved in its buying back shares.

But not all its creditors agreed with this. CECG, for one, objected to the court approving Magic¿s petition. CECG has filed a lawsuit against the Magic subsidiary Magic Inc. In addition to CECG, there are six other significant creditors who did not object to the buyback, among them the First International Bank of Israel, which owns the lien on Magic¿s assets.

In the hearing Magic claimed that CECG acquired software for which it paid $3.600, and that now CECG is claiming unlimited use of any of the versions of the software acquired. Magic claimed that even if the claim is accepted, it has sufficient financial resources to effect the buyback. CECG claimed $3 million damages.

The CECG representatives did not attend the court hearing. ¿It seems that even if there are grounds for the claim made by the customer, and I do not suggest this is so, the company has sufficient financial reserves to ensure the payment,¿ Justice Ishai Levit said, and approved the buyback.

When the Magic board approved the buyback on August 12, Magic shares were trading at $1.9 per share. The company released its results for the second quarter on the following day, which means that its executives expected the shares to drop as a result of the report.

At its peak, Magic shares traded at $30 per share (adjusted to the split), but the share price has since sharply dropped. ¿We believe that Magic stock is significantly underpriced,¿ this is how CEO Menachem Hasfari has recently explained the rationale for the buyback. He added that the Magic stock represents an attractive investment given the company¿s business opportunities, its aggressive product development, and its growing penetration into key vertical markets.

Should Magic today invest $3 million to buy back shares, it will be acquiring 1.6 million shares.

Magic software is used for accelerating the building and deployment of business software applications that can be integrated with existing systems.