The bankruptcy trial of the Ivanhoe Manufacturing Company of this city which had its first hearing about a month ago before Joseph Blount Cheshire Jr., reference in in bankruptcy, in Raleigh, was continued this week consuming the greater part of Thursday. F.K. Broadhurst was treasurer and general manager of the cotton mills, J.J. Broadhurst was bookkeeper and the following were on the board of directors: B.B. Adams, F.K. Broadhurst, J.J. Broadhurst, W.H. Austin, J.H.B. Tomlinson, W.D. Avera and E.F. Ward.
The hearing Thursday was not completed, and the case will be continued some time during the first days of October. An account of the hearing Thursday as published in the News and Observer is as follows:
B.B. Adams of Four Oaks, former president of the defunct Ivanhoe Mills of Smithfield, testified that he did not believe the ill could have lost $67,000 in legitimate hedgings on the cotton market. He was a witness in bankruptcy proceedings before Joseph Blount Cheshire Jr., referee. He said that when he left the mill after a stroke in 1920 that the mill was in as good condition as any in North Carolina.
“Mr. Adams made a very good witness in his own behalf against the thinly veiled insinuations of J.W. Bailey, attorney for Kenneth Gant, trustee, that directors and officials of the mill had traded with themselves to the detriment of the mill, which failed in the spring of 1925 for about $800,000.
“Others examined yesterday were F.K. Broadhurst, treasurer and general manager of the defunct mill, and W.I. Smith, auditor, who identified various figures quoted form the books of the company. Mr. Broadhurst was asked by Mr. Bailey to explain why certain large sums drawn from the amount of the mill in Smithfield banks were not entered on the books at the mill. He will probably be called upon for his explanation at the next nearing which will be October 12.
Want Claims Disallowed
“The parties represented by Mr. Bailey are endeavoring to have large claims against the mill by Mr. Broadhurst and others of its directors disallowed.
“The first witness called yesterday was Mr. Broadhurst who was repeatedly questioned by Mr. Bailey as to losses of $677,353.99, which the trustees, minority stock holders and some of the creditors are endeavoring to show were the result of speculation on the part of the directors. Mr. Broadhurst explained that the “hedging” operations entered into to protect the company against fluctuations of the market were handled on the personal credit of the directors and were not entered on the books.
“Time and again, Mr. Bailey would ask:
“Could you possibly have lost$ 677,000 in legitimate hedgings?”
“Can you explain how $355,448 was withdrawn from the company’s bank account and not credited on the books?” asked Mr. Bailey.
“Mr. Broadhurst could not explain at once but intimated that he could be able to do so later.
“Under examination of Mr. Bailey, Mr. Adams former president of the mill, told how he had been connected with it as a director and later as president since its organization. He testified that he was president of the mill for 12 years prior to a stroke of apoplexy suffered in July 1920. He declared that as president his duties consisted chiefly in attending meetings once a month.
Sharp Questioning
“Mr. Bailey questioned him about his salary and about his dealings with the company I selling the company cotton. He declared he sold around a thousand bales a year to the company for several years but declared he usually sold it for cash and sold very little on call.
“He said he did not have much to do with the business management of the mill. Most of that, he said, was left to Mr. Broadhurst.
“Do you think the mill could have lost $677,000 through legitimate hedging?” asked Mr. Bailey.
“I do not,” replied Mr. Broadhurst.
Dividends Justified
“Mr. Broadhurst declared that he considered all the dividends paid by the mill as justified by the mill’s business.
James H. Pou, attorney for Mr. Broadhurst, then examined the witness and under his guidance the witness told a dramatically interesting story of the uncanny fluctuations of the cotton market from the day war broke out in Europe until after the period of deflation in 1920.
“He declared that the entire amount of cash paid into the mill through sale of stock was only about $180,000. Par value of the stock in the mill, it was brought out, was $250,000. He said that on account of what Mr. Pou termed insufficient finances that the directors of the mill were forced frequently to pledge their personal credit to keep the mill going. For this reason he considered the directors justified in the salaries they voted themselves during the mill’s period of prosperity.
“He defended the action of the directors of the mill in buying cotton for the mill from themselves by stating that it was often impossible on account of the small capitalization of the mill to secure cotton on credit from other sources.
Closed After Fire
“Closing down of the Ivanhoe Mills, which for many years have been Smithfield’s main industry, took place last spring following a fire which destroyed one of the mills. Insurance due on one of the mills was attached by Outz and Company, cotton brokers, to whom the company was indebted.
“The mill had been in poor financial shape since the near panic of 1920 which sent the price of cotton thundering down caught it with large stocks of cotton on hand and practically ruined the yarn market. Rather than fight the attachment proceedings, the directors of the mill threw up their hands and quit via voluntary bankruptcy.”
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Seek to Disallow Claims
Minority stockholders of the defunct Ivanhoe Cotton Mill, one-time principal industry of the town of Smithfield, in a bankruptcy hearing here yesterday sought to disallow claims of directors of the mill, which failed for around $800,000. Kenneth Gant, trustee, was represented by J.W. Bailey. He contended that it was impossible for the mill to have last $677,000 in legitimate hedging on the cotton market, but insinuated that it was due to speculators of directors, who admitted trading with themselves.
The hearing was held before J.B. Cheshire Jr., referee in bankruptcy. It will be continued here on October 12.
The witnesses examined yesterday included F.K. Broadhurst, former treasurer and general manager of the mills, who admitted that the directors bought cotton from themselves and loaned their personal credit to market operations, and who will be called up to explain further financial details at a later hearing. Mr. Broadhurst and others have large claim against the mill. They are represented by James H. Pou.
The mill failed following a disastrous fire last spring, but its condition has been regarded as precautious since the era of war fluctuation on cotton. When the big drop in cotton came in 1920, the mill was caught with large stock and was severely hurt financially. B.B. Adams of Four Oaks, former president of the mill, was one of the principal witnesses at the hearing. He stated that he did not believe that such large sums could have been lost through legitimate hedging operations.
From the front page of The Smithfield Herald, Tuesday morning, September 8, 1925
newspapers.digitalnc.org/lccn/sn92073982/1925-09-08/ed-1/seq-1/
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