The proposed settlement is now subject to Federal Court approval, where the claimants have been pursuing the matter.

Justice Lindsay Foster began hearing the case in the Federal Court in Sydney last week after retired farmers and former AWB shareholders John and Kaye Watson filed the class action, brought by plaintiff law firm Maurice Blackburn and funded by litigation funder IMF (Australia), against AWB in April 2007.

Since then more than 1000 other retail and institutional shareholders joined the action. They were claiming $100 million in losses as a result of a drop in AWB shares when the 2006 Cole inquiry investigated AWB’s payment of more than $290 million to the Iraq’s former Saddam Hussein regime between 1999 and 2003.

According to AWB, if the settlement is approved by the Federal Court the class action against AWB will be dismissed without admission of liability by AWB.

AWB chairman Peter Polson said the "commercially acceptable settlement" was in the best interests of shareholders.

Under the terms of the proposed settlement, AWB will make a payment of $39.5m to the claimants - a sum which also covers their legal costs.

The pre-tax amount will be recorded as a significant item in the 2009/10 half-year accounts, AWB said.

In a statement to the media AWB said the proposed settlement would have no impact on the company's commercial operations or its strategic direction.

"The company is pleased to put this matter behind it as this is the final legal matter directed against the company in Australia arising out of activities under the United Nations Oil For Food program," Mr Polson said.

AWB shares lost about one-third of their value in the month after the Cole inquiry began in January 2006.

This afternoon, AWB shares jumped 7 cents to $1.06 on the news, while IMF shares rose 3.5 cents to $1.735.