Tods Murray is no more – Another Scottish law firm bites the dust
It was very sad to hear of the demise yesterday of another well known Scottish law firm. Tods Murray was formed in 1856 and by 2014 was ranked the 14th top Scottish law firm by The Lawyer based on turnover of £12.4 million. The Scotsman reported in January 2014 that Tods Murray grew its pre-tax profits to £2.5 million in the year to 31 March 2013 from £2.3m in the previous 12 months. But apparently such turnover and profit was not sufficient to keep the wolves from the door. It should be born in mind that, as reported in The Scotsman in November 2011, financial returns at Tods Murray had fallen from a high in 2007 when turnover hit £22.5m and gave the firm a net profit of £8.6m. Tods Murray went into Administration yesterday and was immediately acquired by Shepherd & Wedderburn. Whilst the 160 or so Tods Murray staff are transferring immediately to Shepherd & Wedderburn reports suggest that an initial 50 redundancies are likely.
Tom MacLennan and Iain Fraser, partners with FRP Advisory, were appointed as joint administrators to Tods Murray. As reported in The Journal of the Law Society of Scotland, Mr MacLennan said:
Tods Murray had exhausted every option to turn the business around, and was faced with an unsustainable gap between high fixed costs and income. Administration was the only alternative for the firm, but we are delighted that Shepherd & Wedderburn has acquired the Tods Murray business, and will provide the partners and staff with a stronger platform from which to service their clients.
The demise of Tods Murray was in stark contrast to the news announced just over a week ago when Caroline Shand joined the firm as partner from global law firm Nabarro. The Daily Record quoted Tods Murray, executive partner David Dunsire, saying:
It is a very exciting time just now.
Confidence has been regained in the economy and clients are looking for opportunities.
We are delighted to welcome Caroline to bolster our top level service and legal guidance to the real estate finance market.
We have an unparalleled team and we are very much looking forward to the future.
David Dunsire was apparently unaware that Tods Murray would no longer exist just over one week later.
Rumours of a possible administration at Tods Murray circulated back in 2009 with David Dunsire having to write an open letter to the Scotland on Sunday in March of that year:
We have heard that we are on our bank’s ‘at risk’ register, that partners have refused to inject more cash into the firm and that we are, indeed, about to go into administration. All of this is totally untrue. The firm is financially stable.
In January 2013 Tods Murray were apparently bouncing back with David Dunsire telling The Scotsman:
We have taken steps over several years to restructure and build a lean and effective practice which leaves us well placed, I believe, to emerge from this recession stronger and fitter as we have done with others during our 150 year history.
In an article published in 2009, entitled ‘Lawyers ponder the future as knife is wielded‘, Ian Fraser wrote:
One source said that Scotland’s law firms are currently in “no man’s land”. While dealmaking and all the other boom-time activities dried up long ago, they are still awaiting the “tipping point” — when a spate of corporate restructuring and widespread insolvencies starts to fill the void. For some of the over-stretched firms, the wait might just prove too long.
It clearly did for Tods Murray.
Tods Murray joins other high profile law firm casualties in Scotland in recent times such as Ross Harper and Semple Fraser. Other Scottish law firm names that have vanished through merger with larger English firms include Biggart Baillie, McGrigor Donald (latterly known as McGrigors) and Dundas & Wilson.
I don’t imagine for one minute that this is the last we have seen of such casualties. Why though are these problems besetting large long established law firms? I may consider that in more detail in a future blog post. In the meantime your views are welcome.
Brian, a profitable law firm going “suddenly” out of business and being “rescued” is almost certainly a case of running out of cash. This is becoming increasingly – and distressingly – common in many parts of the world. Witness Heenan Blaikie in Canada and Patton Boggs in the USA and several south of Hadrian’s Wall.
Your readers will appreciate the insights of Ed Reeeser from the USA. He writes prolifically and lucidly on this and related topics, check out this example: http://www.jdsupra.com/legalnews/the-big-law-firm-demise-it-happens-lik-29446/
Our recent post on the economics of the free agency syndrome has generated considerable interest – and angst: http://www.beatoncapital.com/2014/09/economics-free-agency-worry-partners/
Keep up the good work.
Ed Reeser’s insights are indeed interesting.I hadn’t thought of Big Law growth being like a Ponzi scheme before! I also liked his line: “most of those in charge of running the operation have the acumen of a potted plant”.
I hadn’t been aware of ‘The Failing Law Firm’ by David Parnell. Looks as though it is not available in the UK until 15 May 2015.
It looks as though Tods Murray had problems in 2009 (I have updated my post to highlight the rumours that circulated then). One would have thought that over a five year period they could have taken action to cut the fixed costs that were causing them difficulties and increase income. Maybe easier said than done and perhaps they were trying. Although some of the reports might suggest head in sand stuff which unfortunately appears to be rife amongst lawyers.
I wonder if the pursuit of turnover instead of cash was at the heart of the problem. There is too much cash tied up in files (lock in) and too little effort to get cash into the office account. The obsession with billable hours and fees billed as opposed to cash received may have been to blame.
Or maybe a brand new super-sized glassy office block as HQ and a status symbol?
Smaller firms, properly managed are more likely to survive adversity because they are smaller and more easily managed.
Larger firms might just be a vanity project rather than a well planned, we’ll run business project.
Probably a bit of both.
They moved into the new offices you describe in 2005 just before the recession hit:-
It would be interesting to know what their WIP and debtor figures were as of Friday.
Some more information came to light on their new offices and costs associated therewith as published by The Lawyer today:-
It appears 10% of turnover was attributable to lease commitments.
A more detailed analysis ‘death by real estate’ has now been published by The Lawyer:-
The number of high profile bankruptcies suggests a cultural problem rather than a series of isolated financial accidents. I suspect that the roots of the problem are to be found in the “greed is good” culture of the 1980s when firms started to advertise and were financed by banks rather than by equity partners themselves. Junior partners from those times are seniors today and may be finding it easier to pull the plug on an incorporated practice than to rein in extravagant lifestyles.
You have probably hit the nail on the head. Those partners have no doubt been drawing more than the firms could actually afford and living off the bank finance rather than actual profits. No business should be operated like that. The banks are, post recession, realising that they should not be allowing businesses to operate like that either.
And years ago I found that bank security work dried up and a manager told me it was because we didn’t owe the bank anything and they gave work to customers to help them along. Odd approach to banking risk but there’s always the master policy and the guarantee fund. Glad I’m sticking to art these days.
Thanks again Ewan
These days the banks don’t give out commercial security work to their law firm customers but place it in the hands of a select few Big Law firms on their panels. Tods Murray probably having been one of those!
I’m pondering on whether this is another case in another sector where the true, deep, costs of the Credit Crunch and the Great Recession are still coming through. Previous client and other networks, tacit inter-company working relationships and internal corporate competences have been often degraded or vanished as a consequence of the depredations of crunch and recession. Many firms and practices in many sectors have seemingly prevailed, but only at much cost and effort – the outcome having often been a fragile entity highly susceptible to any further shock or stresses.
I’m seeing this phenomena across several sectors. The current lingua franca on the UK economy has it as ‘zombie companies’. On twitter we have #whatrecovery and #whoserecovery.
We’re all expected to keep the thoughts and talk positive, but out there in the deep uncharted waters of the real economy, ‘there be Dragons’.
I think very much a casualty of the Great Recession and there will, unfortunately, be more to come.
As a tax consultant, I never fail to be amazed at how many firms under-provide for tax and this, allied to poorly managed cash flow is often the reason for administration.
Recently I met a partner in a major firm with responsibility for managing WIP. He had a fellow equity partner with over £500,000 in work in progress yet had not raised a single fee so far in the 1st four months of the firm’s year. That sort of financial mismanagement is sadly not an isolated case but is one which many firms appear loath to address.
If Big Law firms were less reliant on big overdrafts from the banks they just might keep a closer eye on that all important cash flow. There should be no excuse for not regularly billing your WIP. Your example, however, does not surprise me.
I suspect for “fixed costs” read “salaries and drawings”. Cutting these was probably a last resort not taken. Result – circa 50 redundancies from 160 staff.
A shrewd observation.
The Tods problem was simple. They had a critical reliance on high billings for a small number of clients, and used that comfortable cushion to sign up for a very expensive lease, thinking billings were secure – they were, after all, long standing clients. Then came partner defections and the credit crunch, and suddenly £22m turnover became £12m. The loss of Bank of Scotland and RBS hurt all panel law firms, some more than most – a lot more. When your turnover drops like that, and you are tied in to a long lease, the writing is on the wall. No surprise, but sad to see another Scots law firm disappear.
Thanks for the insight.
Never a good idea to have all your eggs in one basket nor to become too reliant/expectant on your main fee income from a small number of clients.
I am not sure BigLaw really need expensive offices in one central location. More imaginative things could be done on that front to keep overheads down. I am always amazed by the size and quantity of meeting rooms some BigLaw firms consider they need.
It’s frightening to see once mighty institutions come crashing down to earth, but as you say Michael, a reliance on long standing clients and the belief that they will always stay with you can be a millstone around your neck if and when the tide turns.
There’s still the sense of a gap being left on the Scottish legal scene. Certainly in the charity/social enterprise domains the Tods Murray Third Sector forum was assuming a prominent locus. Any likely new takers?