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Ruling on Sino-Forest restructuring coming Monday

A Sino-Panel factory is seen in Gaoyao, Southern China on June 28, 2011.

Adam Dean/The Globe and Mail

The judge overseeing the restructuring of scandal-plagued Sino-Forest Corp. says he will issue a ruling on Monday in a legal skirmish launched over a proposed $117-million settlement reached between class-action lawyers representing burned investors in the company and its former auditors, Ernst & Young LLP.

Mr. Justice Geoffrey Morawetz of the Ontario Superior Court heard arguments on Friday from lawyers acting for a group of large institutional shareholders of Sino-Forest who argue that the proposed settlement deal with the auditors unfairly blocks them from suing Ernst & Young on their own.

The settlement is part of the broader restructuring deal that would see Sino-Forest transfer its remaining assets to its debt holders, who approved the plan in a vote on Monday. The company's stock sank after it was hit by fraud allegations last year, losing investors billions.

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Lawyers for investment funds Invesco Canada Ltd., Northwest & Ethical Investments LP and Comité Syndical National de Retraite Bâtirente Inc. told court Friday that the proposed deal with Ernst & Young would unfairly preclude their right to opt out of the $9.18-billion class action against Sino-Forest, its directors, auditors and underwriters and launch their own lawsuit. They demanded a month-long adjournment, or the scrapping of the plan all together.

But lawyers for Sino-Forest and its court-appointed monitor told court objections to the settlement were "ill-informed" and that the overall restructuring deal must be approved before what's left of Sino-Forest runs out of cash. Nothing in the restructuring plan, they told the judge, finalizes the Ernst & Young settlement, which would be subject to other court approvals.

Sino-Forest lawyer Robert Staley dismissed objections to the plan, saying they came from the holders of just 1.5 per cent of Sino-Forest shares and were more about bickering between rival class-action firms. The dissenting investment funds lead lawyer is Won Kim of Kim Orr Barristers, who launched an initial class-action case against Sino-Forest but lost the case in a carriage fight to rival law firms.

Mr. Kim told court that the case was about his client's "fundamental rights" and that allowing Ernst & Young to evade other potential lawsuits could affect "the perceived integrity of our securities markets."

The Ontario Securities Commission said this week that it had launched proceedings against Ernst & Young for allegedly failing to properly scrutinize Sino-Forest's books.

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About the Author
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

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