A key player in the allegations facing Sino-Forest Corp. has reached a tentative deal to help investors pursue a potential class-action lawsuit against the crippled forestry company.
Lawyers acting for Sino-Forest investors have agreed to drop their claims against Poyry (Beijing) Consulting Co. Ltd., an arm of Finland-based global consultancy Poyry PLC, in return for its co-operation.
The settlement was revealed in documents filed this week in Sino-Forest's bankruptcy-protection proceedings. Lawyers working on the potential $9.18-billion class-action lawsuit against Sino-Forest had included the company's underwriters, auditors and Poyry in their claims filed last year, accusing the consultancy firm of "negligence."
A leading lawyer on the case, Dimitri Lascaris of Siskinds LLP in London, Ont., said under the deal, which must still be approved by a judge, Poyry would provide documents that would help his case.
"We believe that this co-operation is something that will be of significant value," Mr. Lascaris said in an interview.
According to a court filing, Poyry has also agreed to act as a witness for the plaintiffs, if necessary.
Poyry issued reports on the value of Sino-Forest's forestry holdings in China before the June, 2011, allegations by short-seller Carson Block of research firm Muddy Waters LLC that Sino-Forest was a "massive" fraud.
Those allegations have not been proved, and Sino-Forest has filed a libel lawsuit against Mr. Block. The scandal, which crushed the company's share value, has prompted investigations by the Ontario Securities Commission and the RCMP. And it forced the company to seek protection from its creditors on March 30 under the Companies' Creditors Arrangements Act (CCAA).
A hearing on the Poyry settlement had been scheduled for April 17, but Sino-Forest's move into bankruptcy protection put a freeze on all litigation involving the company.
The plaintiffs' lawyers in the class action are seeking to lift that temporary stay order to allow them to go ahead with the settlement as well as key hearings scheduled for later this year relating to their lawsuit. They also argue that the freeze order applies only to Sino-Forest itself, and not the other defendants.
The plaintiffs' lawyers also say in their court filing they want to quash the company's CCAA process, which is designed to allow for the selloff of its assets to a third party. They call the restructuring plan "a façade," and demand the company instead be put into receivership.
A lawyer for the court-appointed monitor, FTI Consulting Canada Inc., declined comment. A spokesperson for Poyry could not be reached for comment before deadline.
Lawyers for Sino-Forest, the monitor and the class-action plaintiffs are scheduled to be back in court for a CCAA hearing on Friday.
With a report from Andy Hoffman.