Chris Dawson, who ran a successful sub post office in Pitlochry, said he was threatened with criminal proceedings over the £17,500 sum, and told that he could end up in prison.
The 48-year-old was among several former and current sub-postmasters and mistresses giving evidence to the statutory inquiry on its second day of hearings in Glasgow.
He said there was an “automatic presumption of guilt” against him when the two men, dressed in black suits, repeatedly questioned him while his wife and children were upstairs at their home.
“It was very, strange, very intimidating, very scary,” he recalled. “They were more like bully boys, dressed in black, with a very intimidating manner.
“The interview lasted about one to two hours and it was clear to me that the Post Office was not interested in anything I had to say, and just wanted to know whether I could repay the shortfall.
“There was an automatic presumption of guilt. It was horrifying. From the moment they started, I felt as if my back was against the wall.”
Mr Dawson repeatedly refused to accept liability for the shortfall. After being suspended for six months with no pay, he eventually lost his business and was declared bankrupt. His family lost their home and had to sell their car as a consequence.
“I’d been paying the rent and rates for the post office without a salary, and I could no longer afford to pay my mortgage,” he said.
Within months, his marriage also collapsed. “I don’t believe any marriage could have coped with that kind of stress,” he told the inquiry. “I was a complete mess, I was paranoid and I withdrew into myself.”
Mr Dawson said he ended up washing dishes and working as a kitchen porter, and was impacted by the community’s perception of him. “Are they going to believe me or a 300 year-old institution?” he asked.
He broke down in tears when asked by Catriona Hodge, junior counsel to the inquiry, about how the episode had affected his relationship with his daughters, describing how he became “a shadow of himself”.
“A father should be able to provide for his kids, and for a long period I couldn’t,” he said. “They never complained, even at Christmas and birthdays. It just made me feel like a failure.”
Even now, he told the inquiry, the pain and the memories remain a part of his life.
He explained: “I still think about it every day. There’s not a day that goes by when you don’t pass a postie, a mail van, or a pillar box. It’s always there.”
The inquiry, which is being led by retired high court judge, Sir Wyn Williams, also heard from Nancy Chant, the daughter of a postmaster, who first joined the Post Office after she left school in 1973.
Ms Chant, who has worked as the sub-postmistress of the same branch in Newton Mearns, East Renfrewshire, since 1986, paid £11,000 after the Horizon system indicated various shortfalls in her accounts.
“I always knew that I was responsible for any shortfalls in my office, and as such, I accepted responsibility,” she explained. “I was devastated when in 2007, I had a large shortfall of around £8,000. Pure fear and panic flooded through me … a few years later, another shortfall had me doubting myself.
“Now that I’ve learned the Post Office, while asking me to pay for these shortfalls, knew that the system was unreliable, I feel betrayed and very angry.”
She said it was “very hard to stomach” how the Post Office treated her with such little compassion or understanding, despite her long service and unblemished record.
As a result of having to make the payments, she said her income dwindled, meaning she worked hard for years with “almost nothing to show for it”. The financial pressure also saw her personal life deteriorate.
Ms Chant, who received just £2,000 in compensation from the Post Office via group litigation, added: “I felt a sense of shame and isolation. I could not speak to anyone outside of my family about this for a fear my standing in the community would be diminished.”
Also giving testimony was Edward Brown, who worked as a sub-postmaster in Cardonald, Glasgow, for 16 years.
He lost his savings and had to remortgage his home to pay back at least £85,000 to the Post Office due to Horizon shortfalls.
At times, money was so tight, he and his family had to visit relatives in order to enjoy a hot meal.
“It made us feel like we were failing,” he said. “We should not have been failing, because we had a business and we were putting the work in.”
As a result, Mr Brown said, he and his wife, Catrona, have been forced to postpone their plans to retire. “I’ve got nothing to show for all those years,” he reflected.
He said that he will always bear the “tremendous stress” of coping with the “constant spectre of shortfalls” and having to make repayments.
“All of us sub-postmasters who have suffered financial devastation and trauma from the Horizon system and the Post Office’s actions should receive full reparation for what we suffered,” he said.
Concluding the hearing, Sir Wyn said: “As I expected it would, the evidence gathering on the human impact in Scotland has provided us with further important insights into the damage caused by Horizon and the decisions taken in relation to it.”
The inquiry will hold hearings in Belfast next week.