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.