Sino-Forest Provides Update on the Status of its Accounts Receivable
TORONTO, July 31, 2012 /PRNewswire/ - Sino-Forest Corporation ("Sino-Forest" or the "Company") today provided a status update regarding its efforts to collect accounts receivable owing to subsidiaries of the Company.
In support of the Company's March 30, 2012 application under the Companies' Creditors Arrangement Act ("CCAA"), Sino-Forest filed an affidavit (the "Initial Affidavit") that, among other things, described the two business models used by the Company to carry on business in the People's Republic of China (the "PRC")1. One business model involves the use of subsidiaries incorporated in the British Virgin Islands ("BVI"), and the other involves subsidiaries incorporated in the PRC as a wholly foreign-owned enterprise ("WFOE").
As disclosed in the Initial Affidavit, owing to historic restrictions on foreign companies carrying on business in the PRC, a substantial portion of the Company's business in the PRC has been conducted through "authorized intermediaries" that acted as sales agents for Sino-Forest in the PRC. Under this model, standing timber forestry assets are acquired by Sino-Forest through its subsidiaries incorporated in the BVI. Authorized intermediaries receive payments due to Sino-Forest from the sale of standing timber forestry assets owned by certain of the Company's BVI subsidiaries and, at the Company's direction, make payments to the Company's suppliers on account of other standing timber forestry assets purchased by the Company's BVI subsidiaries. Under these set-off arrangements, no cash flows directly through the Company's BVI subsidiaries.
As disclosed in the Initial Affidavit, after foreign ownership restrictions were relaxed, the Company established WFOE subsidiaries that carry on the forestry business directly in the PRC. Under the WFOE model, WFOEs directly pay suppliers for the purchase of forestry assets and directly receive payment from customers when forestry assets are sold.
The Initial Affidavit discussed difficulties faced by the Company in collecting accounts receivable owing to subsidiaries of the Company. The affidavit reported that Sino-Forest's counsel in the PRC had sent demand letters to 17 entities and that further demand letters were in preparation.
As at March 30, 2012, according to the Company's records, a total of $79.6 million was owing to WFOE subsidiaries of Sino-Forest, a total of $887.4 million was owing to BVI subsidiaries of Sino-Forest from authorized intermediaries arising from the sale of standing timber forestry assets and a total of $126.2 million was owing to other BVI subsidiaries of Sino-Forest from certain PRC and BVI domiciled corporate customers from the sale of imported logs and wood products.
Subsequent to March 30, 2012 the Company has continued efforts through its PRC counsel and otherwise to collect receivables owing to its WFOE subsidiaries and to preserve receivables owing to the Company's BVI subsidiaries held by authorized intermediaries and other PRC and BVI domiciled corporate customers. In taking these steps, the Company has learned that certain of the entities with receivables owing to the Company's subsidiaries have recently deregistered under PRC law. Deregistration has the effect of terminating the existence of the entity.
Of the $887.4 million the Company's records show as owed to BVI subsidiaries from authorized intermediaries, approximately $504.8 million is owed by three authorized intermediaries that the Company has learned have been deregistered.
Of the $126.2 million the Company's records show as owed to other BVI subsidiaries from certain PRC and BVI domiciled corporate customers, approximately $63.8 million is owed by six PRC corporate customers that Sino-Forest has learned have been deregistered. One of these six companies also is one of the three authorized intermediaries that deregistered.
The Company believes that the deregistrations were improper under PRC law, and that remedies are available to it as a result of the actions taken. 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. In addition, as part of its efforts to collect receivables, the Company is closely monitoring the registrations and status of its counterparties.
1 The affidavit is publicly available on the web site of the Company's court-appointed Monitor, FTI Consulting Canada Inc. ("FTI Consulting"), http://cfcanada.fticonsulting.com/sfc.
This news release contains forward-looking information within the meaning of applicable securities laws ("forward-looking statements"), including forward-looking statements relating to: the Company's belief that the deregistration of certain entities with receivables owing to the Company's subsidiaries was improper under PRC law and the Company's belief that remedies are available to it as a result of the actions taken; the Company's intention to take all steps necessary to collect receivables owing to it and to enforce its rights against persons and entities responsible for the deregistrations; and the Company's intention to closely monitor the registrations and status of its authorized intermediaries and suppliers. The forward looking statements expressed or implied by this news release are subject to important risks and uncertainties. When used in this news release, the words "believes", "intends" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances. The results or events predicted in these statements may differ materially from actual results or events and are not guarantees of future performance of Sino-Forest. Factors which could cause results or events to differ from current expectations include, among other things: the interpretation and enforcement of applicable PRC laws and regulations by applicable governmental and regulatory entities in the PRC; actions taken against the Company by governmental agencies and securities and other regulators; actions taken by the Company's noteholders, lenders, creditors, shareholders, and other stakeholders to enforce their rights; the outcome of examinations and proceedings currently underway by law enforcement and securities regulatory authorities; the outcome of class action or other proceedings which have been or may in future be initiated against the Company; the accuracy and outcome of the results of tree asset testing undertaken by the Company; the Company's reliance on key employees; the Company's ability to acquire rights to additional standing timber; the Company's ability to meet its expected plantation yields; the cyclical nature of the forest products industry and price fluctuation in and the demand and supply of logs; the Company's reliance on the relationship with local plantation land owners and/or plantation land use rights holders, authorized intermediaries, key customers, suppliers and third party service providers; the Company's ability to operate its production facilities on a profitable basis; changes in currency exchange rates and interest rates; the evaluation of the Company's provision for income and related taxes; economic, political and social conditions and government policy in China, the Republic of Suriname and New Zealand; and other factors not currently viewed as material that could cause actual results to differ materially from those described in the forwarding-looking statements. Sino-Forest Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
SOURCE Sino-Forest Corporation