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Hukilau Foods files for bankruptcy

Andrew Gomes
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Hukilau Foods harvests market-size moi of about 1 to 1 1/2 pounds that are raised in pens submerged about two miles off the Ewa coast. The company, Hawaii’s oldest ocean-based fish farm, has declared bankruptcy.

Hawaii’s oldest, yet still fledgling, ocean-based fish farm has declared bankruptcy.

Grove Farm Fish & Poi LLC, which raises moi off Oahu and does business as Hukilau Foods, filed for Chapter 11 bankruptcy protection Monday under pressure of expansion difficulties and growing financial losses.

The move comes amid a dispute between company owners — Steve Case of AOL fame, and the moi farm’s founder, former commercial fisherman Randy Cates.

The company previously known as Cates International listed $8.6 million in debts and $5 million in assets.

The filing doesn’t affect Grove Farm Co., a Kauai-based firm that is also owned by Case.

Hukilau plans to continue normal farming operations with its 10 employees, and its backers still believe the company can be a long-term success.

"It’s a startup on a leading edge of technology," said Jim Wagner, a local bankruptcy attorney representing Hukilau. "It’s experiencing the growth difficulties that a lot of startups in new industries experience."

The Chapter 11 case is another instance of trouble among companies trailblazing the promising industry of raising fish in open-ocean cages in Hawaii.

Hukilau’s problems come to light following difficulties experienced by Kona Blue Water Farms raising kahala, or Kona kampachi, off the Big Island’s Kona Coast.

Kona Blue is pursuing plans to farm fish off the coast of Mexico to reduce high shipping costs to the mainland. The company also is reconfiguring its Big Island ocean cages and hasn’t harvested fish since last November. Resumption of harvests is anticipated in the next few months.

Neil Anthony Sims, Kona Blue president and chief executive, said the setbacks are understandable given that the industry is trying to scale up operations that were still in research and development phases not long ago.

"It’s very early days for the industry," he said, "but the potential is still huge. Wild stock supplies cannot continue to meet the growing demand from consumers. It has to come from mariculture."

Cates International was founded about 10 years ago and enjoyed relative success as a profitable company farming fish two miles off Ewa Beach.

Case acquired a 51 percent stake in the company renamed Hukilau in 2006 as Cates was pursuing expansion plans.

Hukilau embarked on a plan to dramatically boost annual fish production by building a hatchery on land in Kalaeloa and expanding its state ocean lease to 61 acres from 28 acres.

Annual fish production was projected to rise to 5 million pounds. Production totaled 1.2 million pounds last year.

But problems arose executing the plan. The hatchery faced permitting delays and is targeted for completion late next year.

Disagreement over the expansion led to Cates filing a lawsuit in June against Cases’ investment company, Visionary LLC, alleging that Visionary made bad decisions for Hukilau.

Shortly after filing the suit, Cates was removed as company president, though he remains the company’s minority owner and is one of five board members guiding Hukilau.

Joachim Cox, a local attorney representing Cates, said Visionary decisions dramatically inflated costs for Hukilau and pushed the company into the red after years of annual profits.

Hukilau’s net loss this year through September was $2.4 million, up from $2.3 million for all of last year.

Cates claimed in his lawsuit that Visionary was trying to reduce his ownership in Hukilau and might file for bankruptcy to wipe out his equity stake.

Marissa Sandblom, vice president at Visionary, said the lawsuit lacks merit and that Visionary has always acted in the best interest of the company. "In the real world, business plans change," she said, referencing disagreements between Visionary and Cates over the expansion plan.

Wagner said Visionary filed bankruptcy to protect the huge investment it made in Hukilau.

According to the bankruptcy filing, Visionary paid $500,000 for control of the company and has since invested $8.9 million.

The National Marine Fisheries Service also invested in the company through a $3.8 million loan secured by Hukilau assets and guarantees by Cates and Visionary.

The largest unsecured creditor in Hukilau is the Hawaii Employers’ Mutual Insurance Co., owed $133,200. Other top unsecured creditors include Waimanalo-based Oceanic Institute (owed $123,013), the U.S. Department of Commerce (owed $64,450) and Kapolei-based Land O’ Lakes Feed (owed $49,188).

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