When organic farmed cod operation Johnson Seafarms went into administration last month, the aquaculture industry drew a collective gasp.

The company's brand No Catch was hailed as a blueprint for the UK's fledgling cod farming industry when it was launched in 2005 after a £21m MBO. Just three years later the business has collapsed with debts of £40m. So what went wrong - and what does it mean for British cod farming?

Johnson's No Catch hatchery and processing plant was based in Shetland and was Britain's first substantial organic cod farming operation. Although sales only reached £3m last year, they were expected to soar to £14m to £15m this year as about 3,000 tonnes of fish reached maturity. No Catch had hoped to supply 30,000t of cod to the UK market by 2012, equating to 10% of UK cod consumption.

That now looks decidedly over-ambitious. But No Catch had its work cut out from the beginning. The business was always going to face a tough first few years, say experts. Cod, a species more difficult to farm than salmon, takes three to four years to reach a marketable size - and organic production methods add further costs, says Craig Burton, account manager at Seafish.

"There is a big investment and most of it is up front, before you start producing fish," he says. "Johnson appears to have under-estimated the cost of setting up the business, though its problems could be symptomatic of the current difficulties of raising capital in any industry."

Administrator Grant Thornton confirms that Johnson Seafarms did indeed run out of cash at a crucial moment, just before large numbers of fish were ready to market. Despite what's happened, industry experts remain confident in the farmed cod market. They draw comparisons with the spectacular rise of the farmed salmon industry in Scotland, which appeared from nowhere to form a substantial part of the Scottish economy in the space of a decade, and point to the fact that cod farming is already taking off in Iceland and Norway.

"There are numerous hefty aquaculture operations now - not least PanFish/Harvest, which owns many Scottish salmon farms," says a source in Scottish aquaculture. "I would be surprised if they didn't have a good look at Johnson Seafarms, and put in the money to make it a goer. After all, the plant has 24 cage sites around Shetland, world-class standards and was already diversifying into trout and halibut."

A potential buyer would also be attracted by the multiples' support (Tesco, Sainsbury's and Morrisons list No Catch) and its modern marketing strategy. "No Catch has won 14 awards," says the insider. "The fact it perhaps had a bit of bad luck and couldn't grow the fish quickly enough to recoup initial outlays does not take away from the fact that cod farming is a success story waiting to happen."

What part Johnson Seafarms plays in that success story remains to be seen. Most of Johnson Seafarms' 130 employees are awaiting the outcome of sales negotiations, though a number of directors and staff have already been made redundant. As The Grocer went to press a deal was imminent. "I am in negotiations to agree a contract and we hope to be able to announce something next week," confirmed Grant Thornton's Daniel Smith, though he wouldn't comment on whether the business would be sold as a going concern or split up and restructured.

Whoever lands No Catch could have a very interesting proposition on their hands.