Tuesday, October 2, 2012
Sino-Forest’s Restructuring Deal Leaves Shareholders Cut Out
Wed., October 3, 2012
Shareholders have been quietly shoved aside in the court-ordered restructuring of Sino-Forest Corp. — and they feel a lack of legal counsel is partly to blame, theFinancial Post reported. Last week, veteran Bay Street lawyer Joe Groia agreed to take up the case of disgruntled Sino shareholders, who are furious about their treatment during the CCAA process. But he may be too late. When the scandal-plagued company entered creditor protection in March, the debtholders hatched a restructuring plan in which shareholders would receive up to 15% of the new company that emerged from the insolvency process. In addition, shareholders were told they would get as much as 100% of proceeds from a litigation trust established to sue Muddy Waters LLC, the short seller that first identified problems at Sino-Forest. But apparently the noteholders have changed their minds. In August, the restructuring plan was quietly amended so that shareholders would receive nothing at all. “This was just rubber-stamped and forgotten by the courts and the monitor. Our rights were completely extinguished to the benefit of the noteholders, by the board of directors,” said Jason Evdoxiadis, a minority shareholder who met with Mr. Groia. He believes the board agreed to the arrangement because it also serves to indemnify them (though no one can be released from serious claims of fraud or criminal misconduct). Experts say that the noteholders’ change of plan should not come as a surprise, because their first act was to try to sell the company. Once that failed, there was no reason for them to keep shareholders in the picture as they try to recover value. “Nobody hit their threshold in the sale process, so, you know, the bondholders are completely underwater. When you’re completely underwater, you may not feel so generous,” said one lawyer involved in the restructuring.