Sino-Forest Corp , a Toronto-listed Chinese forestry company accused of fraud, said on Friday it has agreed with some of its noteholders to put its embattled business up for sale.

Sino-Forest has asked a Canadian bankruptcy court to approve an agreement providing for either the sale of the company to a third party, or, if no buyer is found, a restructuring that would let noteholders buy nearly all of its assets.

The request to the Ontario Superior Court of Justice is under the Companies' Creditors Arrangement Act, the equivalent of U.S. Chapter 11 filing.

The company said the CCAA process is the best way to secure its future and normalize operations.

We believe the full value of our assets will only be achieved if we are able to continue operating the business, Judson Martin, chief executive of Sino-Forest, said in a release.

Sino-Forest also said it was taking legal action against short-seller Carson Block, Block's firm Muddy Waters, and unnamed others, seeking more than $4 billion in damages.

Last June, Muddy Waters accused Sino-Forest of exaggerating its assets and Sino-Forest's stock subsequently fell more than 70 percent. Regulators stopped trading in the stock in August and trading has yet to resume.

Sino-Forest also confirmed last fall that Canada's national police force, the Royal Canadian Mounted Police, is investigating allegations of fraud.

Muddy Waters said it would not comment on the lawsuit, because it had not yet seen it. The firm did release a statement on the CCAA process, however.

This is yet another indication of what we have said all along, that Sino-Forest's management has committed a massive fraud and has deceived its shareholders and creditors, Muddy Waters said.

If the company were really generating close to $2 billion in operating cash flow, it would not have had to file for a court supervised restructuring with its creditors.

Sino-Forest said holders of about 40 percent of the aggregate principal amount of its notes have agreed to support its plan to sell or restructure.

(Reporting by Allison Martell and Jennifer Kwan in Toronto; Editing by Frank McGurty; and Peter Galloway)