Boards must be prepared to deal with rapidly deteriorating circumstances that could push a company into insolvency.
Businesses, industries and the economy as a whole run in cycles. Any company can become susceptible to financial distress at some point. Directors need to recognize that every company could at some point face financial losses, or even total dissolution. And so, directors and management must be prepared to deal with rapidly changing circumstances that could cause such distress. One of the ways companies may try to alleviate financial distress is through a financial or operational restructuring.
There are many reasons why businesses fail. It is important to act quickly on any signs of distress and develop a plan that assesses liquidity needs and strategic alternatives. If not addressed early, what may seem like an isolated problem could really be the tipping point that forces you into insolvency.
Get the complete picture when deciding whether to restructure, sell or liquidate. The board should be satisfied that management and advisors have assessed the full extent of the company’s problems and have selected the plan that will maximize return to shareholders and other stakeholders.