The owner of Hawaii’s oldest open-ocean fish farm, Hukilau Foods, has abandoned a bankruptcy turnaround effort and plans to wind down what’s left of an operation that for years successfully raised moi off Ewa Beach.
Hukilau plans to terminate its 28-acre ocean lease with the state, and has already hauled its giant fish cages out of the water, according to a filing in U.S. Bankruptcy Court on Monday.
Two employees continue to work in Hukilau’s shore hatchery in Kalaeloa, and Hukilau plans to retain the hatchery assets for possible sale or to possibly restart a moi farm if future investment materializes. A year ago the company employed 10 people.
Hukilau, an affiliate of Grove Farm Fish & Poi LLC and majority-owned by a firm led by AOL founder Steve Case, tried to seek investors or a buyer last year as part of a turnaround plan. But Case’s company, Visionary LLC, wasn’t willing to fund the plan it projected would lead to profitability after 30 months and an infusion of $9.8 million.
Visionary has invested $2.5 million in Hukilau since the moi farm declared bankruptcy in November 2010. Because of that contribution, Case’s company is proposing that it take ownership of the hatchery and other assets, including the Hukilau name, a boat and a feed barge. Visionary also would assume responsibility for a $3.6 million National Marine Fisheries Service loan secured by the hatchery.
The deal is being proposed as an asset sale to Visionary, by which Visionary acquires the assets in return for its prior $2.5 million investment.
A bankruptcy liquidation auction, according to the sale proposal, would incur unnecessary costs that Visionary isn’t willing to fund. An auction also would require a buyer to pay at least $6.1 million for Hukilau assets, representing the value of the Fisheries Service loan and Visionary’s investment, the company said in the filing.
An asset sale to Visionary or an auction would result in insufficient proceeds to pay other Hukilau creditors, the company said in the filing.
"The sale of (Hukilau’s) offshore assets and onshore assets … is in the best interest of (Hukilau) and its estate," the filing said. "It would be detrimental to (Hukilau) if the sale to (Visionary) was not approved at this time."
A sale is subject to approval by a bankruptcy judge.
If completed as proposed, the sale would mark an end for the first company in Hawaii to commercially produce fish in submerged ocean cages.
Commercial fisherman Randy Cates founded Hukilau as Cates International 11 years ago and initially achieved success growing and selling a species of fish once raised in fishponds and reserved for Hawaiian royalty.
But the business stumbled several years ago while trying to aggressively expand.
A $13 million expansion plan included building a hatchery and deploying bigger fish cages to boost moi production to 5 million pounds a year — a roughly fourfold increase and enough to generate an estimated $20 million in annual sales.
Case stepped in to help finance the expansion in a 2006 deal in which he acquired a controlling 51 percent stake in the company and re-branded it as Hukilau.
Visionary paid $500,000 for control, and up until bankruptcy had invested $8.9 million in the aquaculture venture.
But hatchery delays plagued the expansion, and there also were fish production and survival problems. Hukilau hadn’t harvested fish since early last year. In May 2011 one of its divers, Jeffrey Barbieto, died in an accident while working on an empty cage in the ocean. Hukilau violated 19 safety and health requirements pertaining to the "preventable" tragedy, according to the state Department of Labor and Industrial Relations’ Hawaii Occupational Safety and Health Division.
Cates blamed Visionary for ruining the business. He sued Visionary in June 2010 and was removed as company president shortly thereafter.
Cates remained a minority shareholder in Hukilau, and has agreed to a proposed settlement of his lawsuit in which he would receive undisclosed company assets.
