On Friday, timber company Sino-Forest Corp. announced it had filed for the equivalent of Chapter 11 bankruptcy in Ontario Superior Court, put itself up for sale and filed a defamation lawsuit against the firm Muddy Waters Research.
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On Friday, timber company Sino-Forest Corp. announced it had filed for the equivalent of Chapter 11 bankruptcy in Ontario Superior Court, put itself up for sale and filed a defamation lawsuit against the firm Muddy Waters Research.
Sino-Forest, which operates primarily in China and also has offices in Canada, is currently under investigation for fraud as a result of the report by Muddy Waters released in June 2011 that accused the timber holder of exaggerating its assets. After the report was released, shares of Sino-Forest, listed in Toronto, lost more than two-thirds of their value before their trading was suspended, according to Timber Trades Journal.
"We believe that the CCAA restructuring process is the best method to secure our future and will allow the time and stability required to normalize operations following the allegations made against the company by Muddy Waters," Sino-Forest announced.
Sino-Forest got the blessing for the sale from an ad hoc committee of noteholders. Under its sale agreement, the company would be sold to a third party, or it would restructure with noteholders acquiring nearly all the company's assets, according to Sino-Forest.
On Wednesday, the company floated bondholders a debt-for-equity swap, which would give them control of Sino-Forest's assets through a new holding company, according to Reuters. "It has become clear … that the Sino-Forest business needs to be separated from the cloud that continues to hang over [Sino-Forest] if there is any future for that business (and thus value for [Sino-Forest]'s stakeholders) to be preserved," Judson Martin, Sino-Forest's CEO, said in a sworn affidavit submitted during a hearing on March 30.
Sino-Forest, which has denied all fraud allegations against it, believes the report from Muddy Waters was defamatory, and it is seeking $4 billion from the firm and its founder Carson Block to recover profits. Sino-Forest attests it was hamstrung by the report, which it says had "catastrophically negative" effects on the company. Sino-Forest said its accounts receivable were more difficult to collect, its creditors demanded payments, its sales slowed and its assets were frozen, according to The Washington Post.
