A racing yacht built for a Kiwi Rich Lister was yesterday wrecked on rocks off the New South Wales coast, killing its new owner and his crewman.

Rotorua-educated millionaire Neville Crichton sold his 24.4m yacht Shockwave to his close friend of 10 years, Andrew Short; today he is grieving the loss of that mate, "Shorty", one of Australia's best-known yachtsmen.

"The sea is very unforgiving, and if you make any sort of mistake out there you pay for it very dearly," Crichton told the Herald on Sunday.

Shockwave crashed into rocks at Flinders Islet off Port Kembla around 3am local time.

Rescuers had to battle 2.3m waves in the dark to pluck 15 crew off the tiny island by helicopter winch during the three hour rescue operation. Another crewman was plucked from the raging sea by water police.

The 16 surviving crew members, including a 14-year-old boy, were taken to Wollongong hospital suffering minor injuries and hypothermia.

But Short, 48, of The Spit, and crew member Sally Gordon, 47, of Darling Point, were pulled from the water unconscious early this morning. They could not be revived.

Shockwave was built in Sydney in 2000 for Crichton, who had made his estimated $155 million fortune in the automotive industry and was ranked 49th equal on the NBR Rich List 2009.

The yacht was competing in the annual 92 nautical mile Flinders Islet Race when it ran aground about seven hours into the journey. Three other yachts helped rescue the crew.

Navigator Will Oxley of the yacht Yendys said three red flares lit the pitch black as they sailed to the scene.

"We saw torchlight in the water too and people on Flinders Islet," he said. "We knew something was wrong."

Detective Superintendent Mark Hutchings said the rescue mission was extremely difficult. "Waves were about 2.3m, the sea was sloppy, but the wind was quite calm."

The yacht was so badly damaged, debris floated 2km away into the Tasman Sea.

Crichton called the deaths "a terrible catastrophe".

Crichton had watched the start of the yacht race when it left Sydney on Friday evening, and said the sea was "quite rough" then.

He did not know what could have caused the yacht to hit the rocks, but he speculated they may have cut a corner in a turn or suffered a navigational malfunction.

"He had very good people on the boat so I am sort of surprised. It's hard to believe they made such a mistake."

The boat was "extremely well prepared" for the race, he added, and he did not think the accident was the result of something wrong with the vessel.

"Two people dead," he said. "I wouldn't wish that on anybody."

Some of the wreckage has been deposited outside the Port Kembla Water Police station, and Marine Area Command crime manager Jennifer Thommeny said the yacht's construction and safety would be closely examined.

When Crichton had Shockwave built in 2000, she was the biggest racing yacht in the world at the time.

Designed by United States naval architects Reichel/Pugh, the yacht, including the hull, rudder, mast and boom, mainsail and headsails, was made of carbon fibre.

Short travelled to the US to purchase the yacht in 2008, where he completed the 635 nautical mile Newport to Bermuda race, before sailing on to Panama and then Australia. He participated in several Sydney Hobart yacht races.