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UPDATE 1-China's Huishan Dairy tells lawyers to ready liquidation as debts mount

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* Huishan had said this month debt restructuring was agreed

* One of the most spectacular collapses of a HK-listed firm

* Huishan likely to be wound up and assets sold off (Recasts and writes through with details)

SHANGHAI/HONG KONG, Nov 17 (Reuters) - China Huishan Dairy said it has instructed lawyers to prepare for its provisional liquidation after finding more piles of debt - a sharp departure from earlier this month when it claimed to have agreed on a restructuring plan with creditors.

The move takes the collapse of Huishan, billed as the country's biggest integrated dairy firm when it went public in 2013, into its final stages, underscoring risks for investors in pockets of corporate China that have been built on "innovative financing" and high levels of debt.

Provisional liquidation signals Huishan will likely be wound-up, with its assets sold off to help pay off billions of dollars owed to creditors that include Bank of China Ltd (BoC) and HSBC Holdings. It marks one of the most spectacular collapses of a Hong Kong-listed firm in recent years.

Shares in Huishan - which raised funds by leasing its cows and selling wealth management products - plunged 85 percent in March before being suspended, three months after U.S. short-seller Muddy Waters claimed its financials were fraudulent.

At the time Huishan denied the claims, but since then most of its directors have quit, it has missed loan payments and lost contact with a key executive in charge of its finances and cash.

Its debt pile has also continued to mount. According to a restructuring plan from August seen by Reuters, Huishan's creditors claimed debts of 38 billion yuan ($5.76 billion) by the end of July.

Huishan said in a filing on Thursday that subsidiaries in China likely had around 10.5 billion yuan in liabilities as of the end of March, without giving further details.

"In view of this, the Board has instructed the Cayman legal advisors of the Company to prepare the relevant documentation to place the Company into provisional liquidation," Huishan said in a filing with the Hong Kong exchange.

"Such steps will take into account, as far as possible, options available to the company to preserve the assets of the group."

Its biggest domestic creditors include BoC, which has submitted claims of 4.36 billion yuan, along with China Minsheng Bank and ICBC, which are owed 2.23 billion yuan and 2.04 billion yuan, respectively.

Ping An Bank, which has total claims of 2.4 billion yuan, is among Huishan's biggest creditors owed non-yuan debt, as is a consortium of banks led by HSBC, China CITIC Bank International and Hang Seng Bank, which extended a syndicated loan to the listed vehicle.

Trade in the firm's shares has been suspended since March. ($1 = 6.6283 Chinese yuan) (Reporting by Twinnie Siu in Hong Kong and Adam Jourdan in Shanghai; Additional reporting by Matthew Miller in Beijing; Editing by Edwina Gibbs)