BUSINESS

Sino-Forest says several companies that owe it millions no longer exist

07/31/2012 10:29 EDT | Updated 09/30/2012 05:12 EDT
TORONTO - Troubled Chinese forestry company Sino-Forest Corp. (TSX:TRE), which has been accused of being a massive fraud, says it's owed half a billion dollars by several companies that no longer exist.

Of the $887.4 million owed to Sino-Forest subsidiaries incorporated in the British Virgin Islands from authorized intermediaries, approximately $504.8 million is owed by three firms that have been deregistered.

Sino-Forest, operating under Canadian court supervised restructuring, said Tuesday it believes that the deregistrations were improper under Chinese law.

"The company intends to take all steps necessary to collect receivables owing to it, and to enforce its rights against persons and entities responsible for the deregistrations," Sino-Forest said in a statement.

"In addition, as part of its efforts to collect receivables, the company is closely monitoring the registrations and status of its counterparties."

Meanwhile, of the $126.2 million owed to other BVI subsidiaries from certain Chinese and BVI corporate customers, approximately $63.8 million is owed by six Chinese corporate customers that have been deregistered.

One of these six companies also is one of the three authorized intermediaries that deregistered.

Sino-Forest had used authorized intermediaries that acted as sales agents for the company in China as part of a complicated business model due to restrictions on foreign companies.

After the restrictions were relaxed, the company set up wholly foreign-owned enterprise subsidiaries in China.

As at March 30, a total of $79.6 million is also owed to wholly owned foreign enterprise subsidiaries of Sino-Forest.

Once the most valuable forestry company on the Toronto Stock Exchange, Sino-Forest was accused of fraud last year by short seller Muddy Waters Research.

Sino-Forest and several former executives have since also been accused of lying to investors and attempting to mislead investigators by the Ontario Securities Commission.

In July, the company said that it was going ahead with a restructuring that will see its creditors acquire the company's assets.