Sino-Forest files for bankruptcy protection

AP News
Posted: Mar 31, 2012 1:03 AM
Sino-Forest files for bankruptcy protection

Chinese timberland company Sino-Forest Corp., which is being investigated for fraud, said Friday it is filing for bankruptcy protection, putting itself up for sale and filing a lawsuit against the research firm that accused the company of exaggerating its timber holdings in China

Sino-Forest said it will implement a restructuring plan if the company doesn't receive a suitable takeover offer. The request to the Ontario Superior Court is the equivalent of U.S. Chapter 11 filing.

"We believe the full value of our assets will only be achieved if we are able to continue operating the business, and repair and preserve relationships with our customers and suppliers," Sino-Forest chief executive and vice chairman Judson Martin said in a statement.

Sino-Forest was once Canada's most valuable publicly traded forestry business, but shares plunged last year after short-seller Muddy Waters Research alleged that the company exaggerated its assets. Securities regulators in Canada suspended trading in the shares on the Toronto Stock Exchange. The company is under investigation by Canada's national police force.

Sino-Forest's shareholders in Canada and the U.S. have also sued, alleging fraud at the company.

The company, whose chairman and CEO resigned after trading of the shares was halted, has denied the fraud charges.

Sino-Forest also filed a report by its own independent committee earlier this year into the allegations by Muddy Waters, but fell short of bringing investors any closer to seeing a return on their investment in the company.

Sino-Forest said Friday that it is pursuing a lawsuit against Muddy Waters Research and its research director Carson Block, as well as others who have accused the company of fraud.

The company accused Muddy Waters and Block of making defamatory statements and is seeking $4 billion and the recovery of profits made by the short seller and others.

Block declined to comment on the lawsuit as he had not seen it, but repeated his assertion that Sino-Forest was a fraud.

"This is yet another indication of what we have said all along, that Sino-Forest's management has committed a massive fraud and has deceived its shareholders and creditors," Block said in a statement.

"If the company were really generating close to $2 billion in operating cash flow, it would not have had to file for a court supervised restructuring with its creditors."

Sino-Forest manages tree plantations in China and sells logs, standing timber and manufactured engineered-wood products. Its management offices are primarily in Hong Kong, China and Ontario.

The stock last traded in August 2011 for $4.81.

Richard Chandler, a New Zealand billionaire investor, was the largest holder of Sino Forest shares with just under 20 percent, while New York-based Davis Advisors held about 17 percent of the company.

Shareholders typically receive little or nothing under a bankruptcy protection restructuring.

Sino-Forest said Friday it would not be able to file its audited annual financial statements for 2011 by a March 31 deadline, however Sino-Forest said it would make a draft version of its third-quarter results available.

The company cautioned that the third-quarter results have not been reviewed or approved by the board, any committee of the board or its auditors.