Sino-Forest creditors to take control; sale shelved

TORONTO Tue Jul 10, 2012 8:59pm EDT

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TORONTO (Reuters) - Sino-Forest Corp SNOFS.UL said on Tuesday it terminated a proposed asset sale, in favor of a plan that will result in the company's creditors acquiring all of its forestry assets.

The Chinese forestry company's shares plummeted in June 2011 after a short-seller accused it of exaggerating the size of its forestry assets.

The company's stock has since been de-listed by the Toronto Stock Exchange and one of Canada's main securities regulators - the Ontario Securities Commission, recently charged the company and some of its former executives with fraud.

Sino-Forest was granted protection from creditors by a Canadian court in March. At the time, the company said it would attempt to sell its assets. If a credible buyer did not emerge, however, the company's restructuring plan would let noteholders acquire nearly all of its assets.

In a statement late on Tuesday, the company said the court-appointed monitor and its main advisors determined that none of the bids submitted for its assets constituted "qualified bids," as defined under the rules of its sales process.

Sino-Forest said it would now transfer all its assets, other than certain excluded assets, to a newly formed entity owned and controlled by its creditors, as a full and final settlement of all creditor claims against the company. Sino-Forest did not provide any further detail on the restructuring transaction.

The company was the most prominent of a series of North American-listed companies with Chinese operations to come under suspicion in the last year for faulty accounting or disclosure practices. The scandals have hurt investor confidence and led to sharp declines in the valuations of numerous Chinese companies listed in the United States and Canada.

In addition to the OSC charges, Sino-Forest is also battling potential class action lawsuits filed by its shareholders.

In May, the OSC charged Sino-Forest's founder, Allen Chan, along with former executives Albert Ip, Alfred Hung, George Ho and Simon Yeung, with fraud. It also said Sino's former chief financial officer, David Horsley, failed to comply with Ontario securities law and acted contrary to the public interest.

"Sino-Forest falsified the evidence of ownership for the vast majority of its timber holdings by engaging in a deceitful documentation process," the regulator said in its statement of allegations.

It has also accused the company of hiding weaknesses in its internal controls and of dishonestly concealing its control over suppliers and intermediaries that it did business with.

The OSC initiated a review of Sino-Forest last year after short-seller Carson Block and his firm Muddy Waters accused the company of exaggerating its assets. Law enforcement officials, such as the Royal Canadian Mounted Police, are also still probing the company. (Reporting by Euan Rocha; Editing by Steve Orlofsky and Ed Davies)

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