The boss of a collapsed letting agency which lost £1.2m of money belonging to over 300 soldiers, including those serving in Afghanistan, has been disqualified for nine years.
Paul Smith, 47, director of Blue Force Property, a letting agency in Hornchurch, Essex, was disqualified following an investigation by the Insolvency Service.
Smith has given an undertaking to the Secretary of State for Business, Innovation and Skills, that he will not act as a director of a limited company from February 11, 2013, to February 11, 2022.
The agency had been set up by Smith on land rented from the MoD at Colchester. It was exclusively for the forces and was given a military phone number so soldiers on tours of duty abroad could get in touch easily.
After it went into administration, Essex police confirmed it had received a ‘large number’ of complaints, and Colchester MP Sir Bob Russell said the Government had a moral obligation to reimburse the victims. The MoD, however, said that it was a private company.
The Insolvency Service investigation found there was inadequate ring-fencing of Smith’s business accounts which meant that, when his company went into liquidation in March 2011, there was a £1.2m gap in the books – all owed to armed forces personnel.
Blue Force Property was set up in 2004 exclusively for clients from the forces, to assist them in buying residential properties and letting them out while they were serving overseas or living in armed forces accommodation.
The company, which had a mortgage arm, managed the lets for its soldier landlords, collected rents and encouraged its customers to pay into property management accounts which were supposedly set up for each client individually, from where the mortgage, bills and expenses for their property would be paid.
According to the Insolvency Service, Smith and his staff repeatedly assured the soldiers that any surplus funds they paid in would be held securely in a ring-fenced account. But in reality, all of the money went into one central client account from where thousands of property-related payments were made.
The company then moved funds from this client account into its own trading account and also to the accounts of an associated company. These transactions meant that when the firm went into liquidation, the soldiers lost their money.
David Brooks, a chief examiner for the Insolvency Service, said: “Many of the people who lost out as a result of this company’s demise were stationed overseas and had no choice but to trust Blue Force to look after their affairs on their behalf.
“This trust was broken and the money – money that many of them had risked their lives to earn – was lost.
“Directors who seek to gain an unfair advantage over their competitors by using clients’ funds to prop up their own accounts will be investigated. This behaviour is unfair to those who play by the rules and protect their clients’ funds and, most of all, it is unfair to the clients who risk losing their money.
“The Insolvency Service will seek to remove these people from the business environment.”
Comments
So if he is unable to be a director then he can get his partner/wife/foolish idiot to be the head of the company on paper with him still skimming off the money. I agree with the community service in Helmond would solve the problem but do not forget to put a target on his chest and back.
@Ray Comer - nice wording he is scum
Perhaps this is the real reason the government wants to bring in Licencing.
What on earth were government officials doing allowing this person to market to the armed forces in this way and why did they allow it to go on for so long?
As an RICS member I would have been found out years ago if I had done this and I am sure the same would apply to members of other organisations.
This is truly appalling.
Hi Steve
Yes I think you can ask questions, gleefully was maybe too positive a word, happily may have been better.
No-one is suggesting that you'd do due diligence on say Countrywide, or Touchstone, or LSL, or even smaller operators like RMG or ARPM.
Maybe I am just (much) longer in the tooth and less fleet of foot, but I think it would have struck me as a bit odd that some compoany from Colchester who I'd never heard of suddenly wanted to give me business.
Here is an example
If all this money was disappearing do you think Blue Force were prompt in paying their fees to agents, unless they allowed them to deduct them from rents collected which is rare in asset management company operations.
Even allowing for the usual 30 day (if lucky) or 60 day now more the norm terms from the big boys don't you think someone should have smelled a rat if it took several months to get paid their fees?
Which must surely in this scenario have been the case
I'm on a roll here.
Re Laurence Meade's point, the company probably didn't need to be audited. The turnover threshold at which a company is legally required to produce audited accounts is much higher than that which most letting agencies would generate.
Interesting point here - although I'm not required by law to produce audited accounts, I'm a Franchisee and my Franchisor DOES have the right to audit my accounts.
That's why for a while proportionately more franchisees than independents were found to have accounting irregularities - its because they were the only ones who had somebody (a Franchisor) looking for them.
Picking up on another of IO's points, about local agents gleefully picking up instructions.
We've never done work for Blue Force but we do take on work on a sub-contract basis for other organisations. What questions would you propose we ask? Do you think we should insist on carrying out a due diligence process and an audit of their client account before we take on work? And if so, should they have the right to do ask the same of us?
The theory is great but in the real world it isn';t going to happen.
IO - yes, he can start up as a sole trader.
He can't be a Director of a limited company but he could be a manager, an "advisor" or any other job title and effectively run the company.
Of course "Directors" and "Shareholders" are separate roles even though in a small company people often fulfil both roles. There's nothing to stop him being the owner (i.e. 100% shareholder) or a majority shareholder in a business as long as he assigns the role of Director to someone else.
And the companies auditors were doing exactly what?
As ever EW is right and of course the insurance provided by Mydeposits and TDS does not protect the tenant either - it only covers any disputed amount if the agent cannot submit it when demdnaded for ADR adjudication purposes.
Can someone clarify for me?
Being 'struck off' for any time doesn't seem to stop ex Directors becoming directors again.
But is he only banned from being a diretcor in a limited company? Is he not banned from sunning a business at all - can he set up as a sole trader or be in a partnership?
My guess on the lack of Court action is no individual could or wanted to pursue it (perhaps because what would have been their legal fighting chest went down the tubes with this bloke - and the MoD wouldn't want the embarrassment.
The question posed by Dave is EXTREMELY interesting. The scheme whose name escapes me that Coutrywide used to run for the Forces I thought covered all MoD needs.
Why on earth they would set up with anyone in Colchester? Are all the properties in Colchester? If not then how does Blue Force Property (why that name the Blue Force is the police isn't it) manage properties all over the country?
Maybe some other agents who gleefully accepted a local role for them should have asked a few more questions?
I disagree with James. Bear with me and I'll explain why.
I accept that its frighteningly easy for a large lettings business to lose control of their client account. By "losing control" I mean having a hole open up in your client account because you've lost track of whose money belongs to who with the result that you've ended up paying landlords and contractors before the money has actually been received. If that happens its still seriously wrong but it is incompetence rather than fraud (or as James succintly put it, it would make someone an idiot rather than a crook).
However, the story reports that in this case money was transferred to the office account and also to the office accounts of associated companies. That is a whole different ball game, and frankly it doesn't matter one jot whether having taken the client money he spent it on propping up his own failing business (to the disadvantage of competitors who were operating legitimately) or blew it on a yacht.
Its quite possible that there is an ongoing criminal investigation which is entirely separate from the Insolvency Service investigation. Let's hope so.
There is NO point in banging on about regulation until the Courts get tough.
What I would like to know is how did a private company rent premises off the MOD and get a MOD telephone number implying they were better than using other local companies. How was one private company priveledged over all the others in Colchester. This is also wrong. Backhander? Ex forces owner with mates in the forces most likely.
"While unforgivable I wonder if the lack of Jail sentence reflects the manner in which the person was murdered"
That doesn't work either
If he was banned for 9 years - he did something very wrong
Unbelievable! How can this man walk away from a scandal like this totally unpunished? It is no wonder that the general public think we are all crooks when they see a piece of scum like this walk away unscathed
While unforgivable I wonder if the lack of Jail sentence reflects the manner in which the funds were used.
There is of course no defence, but in the past some agents have made the mistake of spending too much maintaining portfolios rather than stealing the money for their own personal gain.
This article does not make it exactly clear what the money was used for and perhaps in this case the director was an idiot rather than a crook hence no custodial sentence.
I appreciate that in real terms this does not make any difference, but personally I would be more annoyed if it transpires the director used these monies to fund a lavish lifestyle of yachts, holidays and living the highlife.
Surely a prison sentence would be appropriate and selling his assets which were bought from the proceeds of crime so his cliens can be reimbursed. Being banned from being a director should be the least of his concerns.
This is strange. A similar case involving a letting agent who basically used £200,000 of clients’ money was jailed for 2 years.
Why has this person not received a similar fate?
Doubly shocking that it our armed forces personnel that have been affected!
I am sure the world can sleep easily in their beds tonight, safe in the knowledge that this stain-on-human-existance has been barred from being a director for 9 years and not jailed for 9 years.
But that's just business as usual isn't it.
Disqulaified as a Director??? I would prefer he did community service in Helmand Province.
This ring fenced account issue is of course not a solution. It's only ring fenced from banks and creditors. In this case, if there was any left, I wonder it was returned to the proper party or the receivers?
The problem with ring fenced accounts is that they do not protect money from the directors / owners of the business. Lets be honest - when necessity or dishonesty rears its head, the account is not protected from the single biggest risk.
Here lies the case for members of regulatory bodies with CMP and PIU Insurance.
Disqulaified as a Director??? I would prefer he did community service in Helmand Province.
This ring fenced account issue is of course not a solution. It's only ring fenced from banks and creditors. In this case, if there was any left, I wonder it was returned to the proper party or the receivers?
The problem with ring fenced accounts is that they do not protect money for the directors / owners of the business. Lets be honest - when necessity or dishonesty rears its head, the account is not protected from the single biggest risk.
Here lies the case for members of regulatory bodies with CMP and PIU Insurance.