Investors pressed for their money back. It was all gone?

My father was once an investor in a small private company. He initially invested 10k into the company and was earning 6% interest every quarter. After a few years, he decided that it would be time to pull out his money. He thought that he would be getting back about 20k including the interest that he had accumulated. However, when my father went to the company to withdraw the money, they were unable to allow him to withdraw it. They said that a lot of people had withdrawn their money from the company, and they were unable to pay my father out. The company was still generating revenue, but the money that my father had invested was gone. The company had been pressed by investors to repay them their money back, but they were unable to afford to do so. They were pressed so hard that they had to close down the company. I’m wondering how common it is for companies to face problems like this.