TMA Crisis Management 1 — Questions and Answers
Question 1: What is the first step a turnaround professional should take when engaged with a deeply distressed company?
- File for bankruptcy immediately
- Conduct a rapid diagnostic to assess the severity of the crisis and available options (Correct answer)
- Issue a press release to reassure stakeholders
- Negotiate with creditors before reviewing operations
Correct answer: Conduct a rapid diagnostic to assess the severity of the crisis and available options
A rapid diagnostic — assessing cash position, debt obligations, operational performance, and stakeholder dynamics — must precede any action so the practitioner understands the true situation.
Question 2: What is a 'liquidity crisis' in the context of corporate distress?
- A company running out of new product ideas
- A situation where a company cannot meet its short-term cash obligations as they come due (Correct answer)
- A legal term for insolvency under state law
- A drop in long-term asset values
Correct answer: A situation where a company cannot meet its short-term cash obligations as they come due
A liquidity crisis occurs when a company lacks sufficient cash or access to credit to pay its immediate obligations, regardless of its longer-term asset value.
Question 3: Which of the following best describes 'stakeholder communication' in a crisis?
- Issuing legal notices only when required
- Proactively managing the message to key constituencies to maintain confidence and cooperation (Correct answer)
- Communicating only with shareholders
- Delegating all communication to outside counsel
Correct answer: Proactively managing the message to key constituencies to maintain confidence and cooperation
Proactive stakeholder communication during a crisis — with employees, customers, lenders, and suppliers — helps maintain trust and prevent panic that could accelerate the company's decline.
Question 4: What is a 'going concern' opinion from an auditor?
- A clean audit opinion with no issues
- An auditor's warning that substantial doubt exists about the company's ability to continue operating (Correct answer)
- A court order to continue operations during bankruptcy
- A lender's commitment to fund the company
Correct answer: An auditor's warning that substantial doubt exists about the company's ability to continue operating
A going concern opinion is issued by auditors when they have substantial doubt about a company's ability to continue operating for the next 12 months without corrective action.
Question 5: In crisis management, what does 'triage' refer to?
- A legal filing process
- Prioritizing the most urgent issues that need immediate attention to prevent collapse (Correct answer)
- A method of creditor negotiation
- A performance review process for management
Correct answer: Prioritizing the most urgent issues that need immediate attention to prevent collapse
Triage in turnaround management means rapidly identifying and prioritizing the most critical problems — particularly cash-related — that must be addressed immediately to prevent further deterioration.
Question 6: What is 'reputational risk' in a corporate crisis?
- The risk of losing trademark protection
- Damage to a company's brand and stakeholder trust that can accelerate business decline (Correct answer)
- A legal liability from past misconduct only
- Risk from social media marketing campaigns
Correct answer: Damage to a company's brand and stakeholder trust that can accelerate business decline
Reputational risk in a crisis includes customers leaving, talent fleeing, and suppliers tightening terms — all of which can compound financial difficulties if poorly managed.
TMA Crisis Management 1
What is the first step a turnaround professional should take when engaged with a deeply distressed company?