Seafarms wrests back Project Sea Dragon from administrators

The directors of embattled prawn company Seafarms (ASX: SFG) have managed to devein a $13.9 million debt owed to a construction contractor as they look to revive an ambitious aquaculture project, following a legal manoeuvre that cast the net of administrators over Project Sea Dragon (PSD) and came back with a fresh haul.

Seafarms called in Shaun McKinnon and Andrew Fielding of BDO Business Restructuring as voluntary administrators last month for the proposed $1.9 billion PSD - a prawn farming project spanning the Northern Territory and Western Australia that was put in the freezer following a review by previous leadership but has since been revisited.

In November last year the group announced another reassessment had taken place with visits to large prawn farming operations in Ecuador, which gave encouraging signs to management about the technical possibilities of their vision that includes 10,000ha of ponds in Legune Station, NT with harvests to be processed in a plant over the border in Kununurra, WA.

These positive steps appeared to be undone financially by a decision from the Royal Institution of Chartered Surveyors that Seafarms owed $13.9 million to construction contractor Canstruct over money owed after the suspension of works on the project in December 2021 and the termination of contracts in April 2022. 

On 15 February, SFG CEO Rod Dyer said it was this decision by the adjudicator that made voluntary administration a necessary step for PSD.

Less than six weeks later, the group has announced a breakthrough that may breathe new life into the project. After the market closed on Friday it was announced that Seafarms and the administrators had entered into a Deed of Company Arrangement (DOCA), through which Seafarms will make a $3.5 million contribution funded from cash reserves.

In a release, Seafarms said the DOCA  meant control of Project Sea Dragon would be returned to the directors, and that claims against Project Sea Dragon by Canstruct would be discharged.

The DOCA entails returns of 100 cents to the dollar for employees and small claim creditors owed less than $300,000, while the balance of funds will be distributed to non-small claim creditors at a rate estimated to be around 10-11 cents per dollar owed.

The West Australian had previously reported PSD owed $53.5 million to its landlord at Legune Station, but in its announcement today Seafarms clarified that figure related to the maximum amount that would have been due and payable over the entire term of the Legune lease, which it states "remains on foot" with rental payments made throughout the administration process.

"Project Sea Dragon expects to continue with its lease of the Legune area post effectuation of the DOCA," Seafarms stated.

The company reports the DOCA also discharges all other claims against PSD other than claims from excluded creditors, of which there is only one - AAM Licensees, the Legune landlord. The company claims there were no amounts outstanding to the landlord at the date of the administrators' appointment.

SFG shares were reinstated for trading this morning, initially rising 12.5 per cent to 0.9cps, although they have since dropped back to their previous closing price of 0.9cps, giving the company a market capitalisation of approximately $38.7 million.

"The recent assessment of the key challenges to Project Sea Dragon found that there is no technical reason why the project should not proceed," Dyer said on Friday.

"“With the control of Project Sea Dragon back in the hands of the directors, we will refocus our attention on developing the revised business case for the project, including re-engaging with potential funders who had shown interest, and continued to show interest through the voluntary administration.

"The directors of Seafarms Group remain confident in the future of Project Sea Dragon and are keen to see the revised business case for review and assessment."