Explainer-What does the court administration faced by LVMH and Armani units entail?

By Emilio Parodi

MILAN (Reuters) - An Italian subsidiary of French luxury giant LVMH, Dior Manufactures SRL, on Monday became the third fashion company to be put under administration by a Milan court this year.

Prior to appointing special commissioners to oversee the Milan-based maker of Dior-branded handbags, the court had imposed the same terms on a unit of Italy's Giorgio Armani group and on leather goods maker Alviero Martini, famous for its geographical map prints.

WHAT DOES THE COURT ADMINISTRATION ENTAIL?

The decision to place a brand's subsidiaries under court administration aims to give the companies time to reorganise their system of checks on external suppliers to ensure future compliance with existing labour laws.

WHAT DOES THE COMMISSIONER DO?

While the companies operate normally, the commissioner provides regular updates to the court on progress made in the setting up of checks, before magistrates decide to end the special administration.

WHAT ARE MAGISTRATES IN MILAN PROBING?

Milan prosecutors have for the past decade been investigating manpower supply companies that illegally employ workers, evading taxes and welfare and pension contributions to slash the cost of the services they supplied.

The probes traditionally targeted sectors such as logistics, transportation and cleaning services, where workers were supplied by firms that were opened and wound down every couple of years.

The focus has now shifted onto the fashion sector, where probes have highlighted similar problems this year as suppliers break employment rules to slash the cost of the goods they manufacture.

WHAT KIND OF MEASURE IS THE COURT ADMINISTRATION?

The prosecutors have been able to make use of a provision in the law that was originally designed to deal with companies infiltrated by the mob.

These companies would be placed under court, or judicial, administration through the appointment of special commissioners to oversee them.

By widening the scope of the provision to also tackle crimes relating to the illegal use of manpower, Milan prosecutors and police have been able to widen the scheme to include companies contracting goods or services supplied by third parties.

(Reporting by Emilio Parodi; Writing by Valentina Za; Editing by Matt Scuffham and Jan Harvey)