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For embattled Sino-Forest Corp., the shareholder mutiny has begun.

In a last-ditch effort to prevent the forestry firm from being tipped into insolvency and wiping out hundreds of millions of dollars he invested last summer, billionaire Richard Chandler is calling on the board to resign and for Canadian chief executive officer Judson Martin to be sacked.

Mr. Chandler is Sino-Forest's largest shareholder and was its biggest ally amid fraud allegations levelled by short-seller Carson Block and his firm Muddy Waters LLC, as well as investigations by the Ontario Securities Commission and the RCMP.

Now, the New Zealand native, who has previously made bullish bets on struggling companies with governance issues, has turned against Sino-Forest, which earlier this year was the most valuable forestry company listed on a Canadian exchange, with a market capitalization of more than $6-billion.

"Sino-Forest urgently requires strong leadership to address structural challenges … The Richard Chandler Corporation calls upon Sino-Forest to appoint new board members with appropriate experience," said a statement by the firm, which owns nearly 20 per cent of Sino-Forest's shares.

A six-month investigation costing more than $35-million has been unable to unravel the complex web of relationships between Sino-Forest's timber suppliers and the brokers, also called authorized intermediaries, or AIs, who sell the company's trees to customers in China. The absence of answers is preventing the board and its advisers, PricewaterhouseCoopers LLP, from releasing the company's third-quarter financial results and completing a report on the fraud allegations.

Sino-Forest has now breached covenants on $1.8-billion in debt and is expecting debt holders to push it into default. Based in Mississauga, and headquartered in Hong Kong, Sino-Forest had less than $600-million in cash in early November.

A default would likely tip the company into insolvency proceedings, leaving debt holders to divvy up cash and assets and shareholders such as Mr. Chandler with little recourse.

Mr. Chandler's firm is now threatening to sue Sino-Forest for negligence if it does not begin making interest payments due on its debt and demanded that "any current director of Sino-Forest who is preoccupied with issues of personal legal liability arising from the Muddy Waters allegations step down."

Sino-Forest's second largest shareholder is also unhappy with the company's decision to stop paying interest on its debt and conserve cash. Tucson, Ariz.-based Davis Advisors, which says it owns 17 per cent of Sino-Forest's shares, sent an open letter to the board. "We are shocked by your failure to make a ten million dollar interest payment on December 15 and your consideration of a plan to put the company into liquidation," the firm said.

Just a month ago, Sino-Forest CEO Mr. Martin hailed an interim report by a board committee as proof the company was not a fraud or a Ponzi scheme, as alleged by Muddy Waters. At the time, Mr. Chandler's firm said it "welcomed" and was "encouraged" by the report.

But the document also raised a slew of issues and red flags regarding Sino-Forest's complicated business structure and potential related-party transactions. The committee still can't get to the bottom of these relationships and some close to the situation believe they may never be able to do so.

"Sino-Forest and its board of directors, along with the independent committee, are working diligently to address the outstanding issues raised in the independent committee's interim report.  Sino-Forest and its board are completely focused on acting in the best interest of all stakeholders thru this complex and challenging process," the company said in a statement responding to Mr. Chandler's calls for the board and Mr. Martin to resign.

In addition to pleading with bondholders to keep it afloat, Sino-Forest has hired advisers to sell assets or the entire company. Financial restructuring specialist Houlihan Lokey, which worked on the Lehman Brothers, General Motors, Enron and WorldCom cases, is now a Sino-Forest advisor.

The firm will be challenged to raise capital from Sino-Forest's assets, as their ownership and value is in question. According to documents released by the company, the OSC has expressed "grave concerns" that just 18 per cent of Sino-Forest's timber assets have actual plantation rights certificates that prove legal title in China.

In the event of a default, getting Sino-Forest's cash out of China will likely be difficult. Analysts at ANZ Bank believe that just $206-million of Sino-Forest's remaining funds are held outside of China.

One Canadian mutual fund manager who owns Sino-Forest shares said his firm is preparing to write down the value of its investment in the company to zero.