The news of Curtis' demise dealt another blow to Scotland's paper industry and has been met with shock and disbelief by the industry.

Following the news, during which 180 staff were told "very suddenly" they were being made redundant with many not being paid for the past four week's work, managing director Keith Chapman led a sit-in protest to put pressure on administrators KPMG Restructuring to pay the staff.

Chapman said: "I realised nothing could be done legally, so I suggested that we occupied the sales office until the matter was resolved.

"We negotiated a satisfactory outcome late last night and the matter of pay has now been resolved."

However, he warned it could be retracted following negotiation.

Blair Nimmo and Gary Fraser of KPMG Restructuring were appointed as joint administrators of the 135-year old Guardbridge, St Andrews-based paper mill by the company's directors yesterday morning.

Of the 260 staff, 80 have been retained to keep the company trading while the administrators attempt to find a buyer.

Nimmo said: "It is with regret that we have had to make substantial redundancies across Curtis Fine Papers operations and we are working with government agencies to ensure the employees' issues are dealt with as best as possible."

The £35m-turnover company has experienced significant losses in recent years. However, it had witnessed an improvement in trading over the last year.

Chapman said: "The company has been making net profit after payments of interest for six months. Then, two things happened. We needed more cash going forward and our bank changed hands.

"It meant that we were short of cash and had no alternative than to move into administration. Our balance sheet just wasn't strong enough."

Chapman said that if someone was to buy the company now, the staff could be taken back. If not, it will be shut down.

He said: "We are hoping that someone will buy it as a going concern. Our customers have been calling from around Europe and have been fantastically supportive."

Simon Fairclough, Scottish Print Employers Federation (SPEF) director, said: "This is a body blow for the region and for the Scottish economy.

"It's not as if we're likely to witness drastically reduced demand for paper any time soon.

"Rather, this is yet another case of an organisation working desperately hard to catch up on efficiency to compete in an utterly unforgiving market."

The news of the administration comes just over 18 months after the company was bought in a management buyout led by financial director Robin Paul.