ALMOST three years after Edinburgh firm Tods Murray was bought out of pre-packed administration by its larger rival Shepherd and Wedderburn a similar fate has befallen 250-year old Fife outfit Pagan Osborne.

After appointing Tods Murray’s administrators – FRP Advisory partners Tom MacLennan and Iain Fraser – last Friday, Pagan Osborne’s partners, staff, clients and work in progress have passed to Dundee-headquartered Thorntons Law in a pre-arranged deal.

Though the circumstances surrounding the collapses were near identical, with both firms reaching a point where they simply did not have the cash available to service their debts, the way they got there was not.

Tods Murray, like Semple Fraser before it, was forced to call it a day after an exorbitant lease signed on state of the art offices in the pre-2007 world started looking ever-more expensive following the financial crash.

Having moved into the same Edinburgh development – Fountainbridge – as its then trophy client Bank of Scotland, Tods Murray was committed to making annual lease payments of over £1 million, which in 2005/06 equated to four per cent of its turnover but by 2013/14 was closer to eight per cent.

Expensive loans taken out to help with cashflow proved the firm’s ultimate undoing, with interest payments alone jumping from £68,000 in 2011/12 to £148,000 the following year.

The firm eventually defaulted and its bank – Bank of Scotland – appointed Mr MacLennan and Mr Fraser on October 3, 2014.

Pagan Osborne, which operated lower down the legal food chain with a focus on private client and estate agency work, was not affected by unmanageable property liabilities, but rather the firm’s decision to sell off its investment and financial advice arms in 2008.

Although Pagan Osborne reportedly received £5m for the sale to Ashcourt, only part of that was paid in cash, with the remainder in shares. A source close to the firm said that most of the proceeds of the sale were subsequently withdrawn from the firm as cash.

Cashflow later became a problem for the firm and hampered its ability to service its growing debts.

The firm’s accounts for the year to the end of October 2015 – the most recent to be filed at Companies House – showed that while the firm’s turnover increased marginally during that year, from £4.8m to £4.9m, the amount of income it was having to assign to cover its debts rose much more dramatically.

The interest the firm paid on bank loans and overdrafts increased from £18,000 in 2013/14 to £83,000 in 2014/15, while the total amount of interest it paid on all loans and finance leases rose by 25 per cent to £326,000.

That included interest of £31,221 on loans provided by the firm’s four directors – chief executive Alistair Morris, private client partner Elizabeth Calderwood, estates partner Colin Clark and client development partner Ian Fraser.

Mr Morris, who was president of the Law Society of Scotland between 2014 and 2015, attempted to improve the firm’s cashflow during the 2014/15 year by having his personal pension acquire some of its property for £95,000.

Ultimately, though, as was the case with Tods Murray, it was a loan from a high street bank that proved Pagan Osborne’s eventual undoing.

Although the firm managed to repay a loan from Bank of Scotland in July this year, a further facility agreed in December 2015 that gave HSBC the power to have the firm wound up remained outstanding when the firm was placed into administration.

Now, despite the deal with Thorntons, it is expected significant numbers of Pagan Osborne’s 123 partners and staff will be laid off in the near future, with Thorntons currently engaged in a redundancy consultation that is expected to result in the loss of around 70 jobs.

Similarly, when Shepherd and Wedderburn took over Tods Murray’s business, around 50 of the smaller firm’s 138-strong workforce lost their jobs as the result of duplication of roles between the two operations.

Thorntons joint managing partner Craig Nicol confirmed that a 45-day consultation period would be launched among staff this week, but stressed that the firm would continue to service all Pagan Osborne’s clients.

“The two things that are at the forefront of our minds right now are the preservation of jobs and seamless service to clients,” Mr Nicol said.

“When this sort of thing happens clients get very worried about ongoing transactions or funds they have lodged with the firm.

“This is all about making clients aware that its business as usual – they will be dealing with the same people on ongoing transactions.

“We are there to support them and make sure they get great service and we’re also working hard to save as many jobs as possible.”

While Thorntons, whose offices span the east coast from Edinburgh to Montrose, will retain Pagan Osborne’s base in Anstruther, its branches in Edinburgh, Cupar and St Andrews are all set to close.