You can't trade out of trouble, says Richard Seel, especially with heavy debts to service

For Richard Seel, managing director of Xact Document Solutions, the credit crunch started in 2004. His company, which sells Xerox printing equipment throughout the UK, began life as Xera-Logic in 1993. The company was thriving and, keen to expand, Seel set up a business in Scotland.

"In early 2003 we set up Xera-Logic (Scotland) and recruited a couple of high-fliers to manage it," says Seel. "We were superstars in Xerox."

But Seel soon realised things weren't right. "I'd set the guys up in the new business venture as directors and shareholders but I was paying them on commission. They were taking out more money than the business was bringing in."

With hindsight, he should have had a shareholders' agreement in place. "They started to value themselves more than we'd initially set out," recalls Seel.

The management team in Scotland then announced it had negotiated with Xerox to break away and launch their own business. "We found out that there was a lot of debt in the company, which put pressure on the main business," says Seel. "We were in real trouble."

With no cash to pay creditors, Seel opted for a Creditors Voluntary Arrangement (CVA) that froze its debts and allowed the company to keep trading. As the main creditor, Xerox would only support Xera-Logic in the Midlands, so Xera-Logic Scotland ceased to be.

The CVA was approved in court with all creditors voting in favour of a four-year payback deal starting in 2005. "We had to create cash straightaway because I still had £100,000 overheads a month," says Seel. "As no one would give us credit, we traded purely on cashflow and cash management."

Customer service was also key. "We put our arms around our customers, told them what was happening and gave loyalty discounts," says Seel. The company paid back the last of its creditors in February this year, 10 months earlier than forecast. "Apparently we are a rare commodity. We've turned a business with no cash and no creditors into one that is running smoothly with a bank balance of around £500,00 a month and a turnover of £7.5m."

If he's learned one thing it's that directors shouldn't think they can trade out of trouble: "You have to be honest with yourself and the business and you have to act quickly."