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.”