In 1866, the Industrial Schools Act was passed through the NSW Parliament in an effort to control wayward or destitute children. The Act was initiated following the findings of an 1859 Select Committee on the condition of the working classes in Sydney. The committee estimated that there was up to 1,000 destitute children in Sydney alone, and recommended the establishment of reformatory schools to get them off the streets. The schools were designed on Industrial Schools in England which would remove children who were homeless, involved in crime or neglected in some way and place them in reformatories, separating them from the bad influences that they were under.

Once 'saved', the children could then be given a rudimentary education, taught the basics of a trade and be apprenticed out to start their lives as useful citizens. One response to the 1866 Act was the establishment of the Nautical School Ships, the first of which was the Vernon. Encouraged by Henry Parkes, the then Premier of NSW, the ex-navy sailing ship was converted into a training ship to house up to 500 boys. The ships combined a system of education and military-style discipline, based on a reformist vision. Social philanthropists supported the principle of removing a child from a bad family environment in order to ensure the child's moral reform. Military-style drills were introduced under the guidance of the Superintendent (from 1878- 1895), Frederick William Neitenstein.

The days on board were divided in two, with lessons taking up one half of the day and drill taking up the other half. The boys were under constant supervision, with inspections being a means to ensure they stayed on the right path.2 The boys were further controlled through a class system of seven grades, with each grade carrying privileges and work routines. Boys worked on a marks system to advance to higher grades, receiving the extra privileges that went with them. By encouraging advancement, the system was designed to maintain discipline and ensure self-reliance, both seen as being essential to reform.

The Sobraon, a second training ship that had been built in 1866, replaced the Vernon in 1890. Both ships were anchored off Cockatoo Island in Sydney Harbour, the Sobraon remaining there until 1911.

Whilst moored off Cockatoo Island, the boys of the Vernon and the Sobraon maintained a small farm to supply themselves with fresh food, a tradition that would be carried on at Mount Penang.

In future years the buildings at Mt Penang would be named after these nautical school ships.