Lancashire Cotton Corporation - Formation

Formation

By the late 1920s the situation of the cotton industry in Lancashire was desperate. Many spinning mills and weaving sheds had closed down, the stock market had crashed and a general slump was affecting western economies. Political action was called for. Within the cotton industry the main problem was in the spinning sector; weaving was having a rough time, and the finishing trades were getting by, but in spinning a cutthroat competition between individual enterprises was destroying them. Things were hard for shareholders; they were no better for the banks that had, in effect, had the assets thrust into their hands as companies defaulted on their loans.

It was for this reason that the Bank of England became involved. It promoted the establishment of a quasi-governmental authority, to be called the Lancashire Cotton Corporation (LCC), which was set up in 1929, headed by Sir K. D. Stewart. Its target was to control ten million spindle and rationalise production by central planning. It would utilise the most efficient plants to lower production costs, and would scrap uneconomic mills. The state enterprise had access to unlimited capital on which it paid no interest. The small mill owners couldn't compete. The aim was to win back export markets, and thus save some of the Lancashire industry; but this failed, its customers were in the main domestic. The LCC succeeded in buying out 96 companies, which represented a quarter of the industry's spindles.

During 1928 there were difficult negotiations to persuade creditors and shareholders to exchange their shares for Income Debentures and Shares in the LCC. It established central purchasing and marketing organisations and progressively took control of mills and weaving sheds. Sometimes the mills were closed down and scrapped, but others were brought back into production per the plan. Small share holders held worthless shares while the banks benefited by being to keep the assets on their balance sheets until the time was opportune to manage a liquidation, thus preventing a banking crisis.

LCC attempted a capital raising exercise in 1931, the prospectus being published in The Times on 26 March. It was for £2 million six-year 6.5% First Mortgage Debenture Stock and in the event, though competitively priced, 96% was left with the underwriters, The Sun Insurance Office. Lancashire had been too hurt, and become too sceptical, by the debacle of its cotton industry and there was no faith left.

By 1930 several dozen mills had been taken over, the names and dates of the contracts signed with the LCC being published in the prospectus. The LCC ran a trading loss of £382,795 in 1932, then a loss of £69,766 in 1933 but turned a profit of £30,189 in 1934. Although this looks creditable, it is likely that the accounts of the organisation would not have reflected the real commercial state of the business. In January 1935 the LCC owned 5,361,000 equivalent mule spindles and had scrapped 4,630,000 others. Of 140 mills it had acquired, 74 had been, or were being, scrapped at that time.