Until recently the largest forestry stock listed on the Toronto Stock Exchange, Sino-Forest warned last week it would not be able to file its quarterly results on time as an internal probe into fraud allegations is taking longer than anticipated.

Sino-Forest has been reeling since June, when short seller Carson Block and his Muddy Waters firm accused it of exaggerating the extent of its Chinese assets. Sino-Forest has said a preliminary investigation by its independent directors showed no evidence of fraud.

It is the most prominent of the Chinese companies listed in North America whose shares were either suspended or delisted this year amid suspicions about their business practices and Chinese regulatory safeguards.

Sino-Forest said its board decided not to make a $10 million interest payment that was due to noteholders on December 15.

Singapore-based Richard Chandler Corp, Sino-Forest's largest shareholder, last week demanded a board shake-up at the firm, slamming the "excessive time and money" spent on the probe and questioning the board's decision to delay its results. Chandler's fund stands to lose at least C$140 million and possibly more, if Sino becomes insolvent.

Regulators have put a cease-trade order on Sino-Forest's shares, pending the completion of an investigation into the company. The shares had fallen more than 75 percent this year, before being halted by regulators in late-August.

WAIVER HOPES

The company and its advisers met last Wednesday with an ad hoc committee of noteholders and their legal counsel. Sino-Forest said all parties expressed "a willingness to work cooperatively with the company in an effort to preserve value for the benefit of stakeholders."

However, it cautioned that it cannot independently verify the holdings of those who attended or were represented at the meeting. It said the notices of default it received were not initiated or supported by noteholders attending the meeting.

The company said it was talking to noteholders in the hope of securing a waiver, in relation to its failure to file its financial results, but it cautioned there was no guarantee the default notices would be withdrawn or waivers obtained.

If the default notices are not withdrawn and the waivers not obtained within a 30-day period, and if Sino-Forest does not file its results in that time, a default will have occurred under each series of its senior notes, the company said - allowing noteholders to demand the company repay the principal and any unpaid interest due on the notes.

Sino-Forest said the total principal owing under the four series of outstanding senior and convertible notes is about $1.8 billion. It also has loan facilities in China of $70.5 million.

Last week, Moody's withdrew all its ratings on Sino-Forest, arguing it had insufficient information to maintain them.

Sino-Forest said it established a special restructuring committee made up of independent directors to supervise, analyze and manage a review of the strategic options available. These may include recapitalization, or the sale of some or all of its businesses and assets. The committee will also consider creditor protection or other insolvency-related proceedings.

(Reporting By Euan Rocha; Editing by Matt Driskill and Ian Geoghegan)

• A Permanent Economic Emergency