Renewed plans to build one of the world's largest prawn farms on a remote Northern Territory cattle station look to have been derailed by a Federal Court ruling.

Seafarms, the embattled parent company of the ambitious $2 billion Project Sea Dragon, appeared in Federal Court amidst a payment dispute with Canstruct, the contractor that managed works on the prawn grow-out facility at Legune station, north of Kununurra.

Project Sea Dragon entered voluntary administration in February 2023 after an order from the Royal Institution of Chartered Surveyors to pay the contractor $13.9 million of unpaid fees.

A month later, Seafarms announced the project had entered into a Deed of Company Arrangement, a move that would limit the amount it would pay Canstruct to about 10 per cent of the amount it sought.

The court judgement on Thursday ordered to terminate the arrangement, reasoning it was used to allow Project Sea Dragon to avoid its liability to Canstruct in breach of the Corporations Act.

It also ordered the project to be wound up in insolvency with Korda Mentha to act as liquidators. 

The orders are under an interim stay period in which Project Sea Dragon is able to appeal, an option the ABC understands the company plans to take.

Millions of dollars of government money has been put into supporting the project, particularly on surrounding roads.

The federal government contributed $63 million on nearby road infrastructure, while the NT government spent $56 million and the WA government allocated $15 million.

Seafarms announced in an ASX letter on March 24 last year the Deed of Company Arrangement allowed the company to return the project to its directors and that operations should return to normal as the board sought further funding.

However, the Federal Court's ruling to terminate arrangement was based on the reasoning Project Sea Dragon should not have been publicly trading.

Seafarms Group Limited was placed in a trading halt on Wednesday.

"The conclusion has been reached above that Project Sea Dragon has been insolvent since, at least, June 2020," the judgement reads.

"Further, as Project Sea Dragon was and is insolvent, it ought now be wound up in insolvency."

The ruling said Canstruct was entitled to the $13.9 million it was seeking from Project Sea Dragon.

Seafarms has been contacted for comment.

In a statement, Canstruct chief executive Damien Cavanagh said the Federal Court's decision affirmed his company's position that the Deed of Company Arrangement was unfairly prejudicial or unfairly discriminatory against Canstruct.