Project Sea Dragon - Case Update

Project Sea Dragon, an almost $2 billion Northern Territory prawn project owned by Seafarms Group, is finally set to be liquidated after the Federal Court released its decision dismissing an appeal of a decision terminating the company’s DOCA.

Project Sea Dragon entered voluntary administration in February 2023 after an adjudicator ordered it to pay $14 million to Canstruct, a contractor that managed works on the prawn farm and workers’ accommodation.

In March 2023, the company entered into a DOCA pursuant to which all arm’s-length creditors were to be paid in full, other than Canstruct, which was estimated to receive 10 to 11 cents in the dollar.

In February 2024, the Federal Court granted an application to terminate the DOCA, finding that it was an abuse of Pt 5.3A, having been used to allow Project Sea Dragon to avoid its liability to Canstruct in breach of the Corporations Act. Robert Hutson and David Johnstone of KordaMentha were appointed joint liquidators, but the decision was stayed to allow Project Sea Dragon to appeal.

On appeal, the Court found that the standard of review was correctness and upheld the primary judge’s decision. Among other things, the Court found that the evidence provided a compelling basis to conclude that the predominant purpose of putting Project Sea Dragon into administration and proposing the DOCA was to avoid having to pay the adjudicator’s decision in favour of Canstruct, except to the extent of about 10 cents in the dollar. It was difficult to see how any other conclusion could have been drawn on the evidence.

The Court also agreed with the primary judge’s reasoning that using the voluntary administration and DOCA process for the predominant purpose of expunging a particular creditor’s debt which was unwanted, while paying all other arm’s-length creditors in full before restarting operations in an almost identical position to the pre-DOCA state save for the existence of the particular unwanted debt, was alien to the objects of Pt 5.3A.

The decision can be found here.

Professionals involved:

• Counsel for Canstruct: Brian O’Donnell KC

• Solicitor for Canstruct: Thomson Geer

• Counsel for Project Sea Dragon: Mark Martin KC and Alexander McKinnon

• Solicitors for Project Sea Dragon: Mills Oakley