I have a client who, prior to being my client, set up a successful company. They brought in outside equirty funders which ended up with an acromonious split.
The company bought out the directors shares (share buy back). There was a large directors loan outstanding at the time.
My client received money for the shares, and a dividend pre exit, but did not have his DLA repaid. This is a contentious issue. The client think that they have written it off after he exited. The arrangement was that it would be a clean break (I am waiting to see the paperwork but assuming that this is true...).
Given that dividends are dividends, and that consideration for the shares is the consideration for the share, there is no opportunity to recategorise the receipts he received as repayment of DLA.
Would the correct treatment of what has happened to the DLA be a capital loss under s253 TCGA 1992 (CGT relief: loans to traders). This could then be offset against the gain in the year from the sale of the shares.
Your wise thoughts are welcomed!