In the case of Bass & Ors vs Buchanan, the director was ordered to repay her director’s loan account balance of just under £300,000 which she had sought to re-categorise as remuneration shortly before her company had entered into liquidation.

Historically, the director had received a modest salary of £6,000 pa and paid herself a further £3,000 pcm. The director believed that the company was profitable and claimed to be unaware of the substantial arrears to HMRC which were accruing. HMRC made formal demand for the arrears and the director sought insolvency advice.

Shortly before the company entered into liquidation, the director / bookkeeper amended the company’s records to reclassify the director’s loan as drawings.

The subsequently appointed liquidator issued a claim from misfeasance arguing that the re-classification of the payments as drawings did not accurately reflect the true nature of the payments and the director was still indebted to the company.

The liquidators were successful with their claim and the court argued that it was not open to the director to recreate history and the burden of proof lay with the director to show she was entitled to receive those monies.