Toad 12.1 is a pretty old version of Toad. I’m not sure if this the issue you’re running into or not; but back then, we were using custom open and save dialogs to open and save files from the editor. These dialogs used third-party components that sometimes had trouble resolving file and folder shortcuts when the destination file or folder was missing or unreachable.
I would recommend creating a clean set of user files through the Utilities -> Copy User Settings menu. That may fix your issue. If it doesn’t, check for shortcuts to non-existing files or folders within Windows Explorer (outside Toad), and if there are such orphaned shortcuts, remove them.