Seafarms "very active" raising funds amid appeal over court ordered liquidation of prawn project

Last week a court overturned a Deed of Company Arrangement (DOCA) for prawn producer Seafarms (ASX: SFG) to salvage a planned mega-project spanning northern NT and WA, but a stay order allows the Darwin-headquartered company to appeal by 22 March.

The Federal Court determined that the DOCA would allow Seafarms' Project Sea Dragon (PSD) to avoid its liability to construction contractor Canstruct over works at a prawn facility in Legune Station in NT over the border from Kununurra, which an adjudicator had previously deemed to be owed $13.9 million - a decision that prompted the group's calling in of voluntary administrators in early 2023.

The court also ordered the project to be wound up with KordaMentha as liquidators.

But according to an announcement by Seafarms made after the market close yesterday, Project Sea Dragon will "continue its business as usual", with the founder stock centre in Exmouth, WA continuing to improve the quality and performance of broodstock targeted for the project. 

"PSD is currently producing export product from Seafarms' Queensland operations to build the export market for PSD and continues to be very active in pursuing funding for Project Sea Dragon," the company stated.

"There is no immediate impact to PSD’s parent, Seafarms Group Limited (SFG). SFG does not become liable to Canstruct by operation of this judgment.

"SFG and PSD maintain their position that PSD has met its liabilities under the construction contracts with Canstruct as determined by an independent certifier."

The group reported a 28 per cent increase in revenue in the December half to $20.3 million from its Queensland prawn farming operations in Flying Fish Point, Cardwell and Ingham with total production up 17 per cent at 697 tonnes.

The lack of construction expenditure on PSD meant that Seafarms' loss for the half was cut in half to $6.6 million, and the group incurred an operating cash outflow of $800,648 - a state of affairs that led Dan Colwell from Pitcher Partners in a review (not an audit) of the results to highlight "material uncertainty" that "may cast significant doubt about the group's ability to continue as a going concern".

In its own statement, Seafarms said PSD's ability to continue as a going concern would depend on one or more of several outcomes, including defending the legal case brought by Canstruct to overturn the DOCA, and raising project finance through a mix of equity and debt.

Other channels raised to keep the group alive include continuing to improve the profitability and cashflow from Queensland operations to "fund corporate activities", reducing discretionary cash flow, and generate cash through asset sales.

Even if the DOCA were to be executed, as of 31 December 2023 Seafarms had negative net assets of $3.3 million.

"In the event that PSD were to go into liquidation the assets and liabilities of PSD at the time would be deconsolidated from the group," the company stated.

The last budget estimate for the construction of Project Sea Dragon itself stood at $1.87 billion. By mid-2020 Seafarms had raised $110 million for the project with the Northern Territory Government committing to spend an additional $56 million on roads.

Seafarms raised a further $92.5 million for the project before construction began in June 2021, $20 million of which came from its largest shareholder Ian Trahar, who successfully ousted a former CEO who had instigated a review of the project which found it to be infeasible.

Under leadership that is more aligned with Trahar, a study tour of large prawn farming operations in Ecuador was undertaken which management believed provided positive signs from a technical perspective about the 10,000ha of ponds contemplated under Project Sea Dragon in Legune Station.