When can the word-of-mouth marketing destroy the business?

There's nothing more potent than negative word of mouth to destroy your business.
I remember reading a study that said that negativity about a brand travels much faster than its positives.
Negative word of mouth could come from an unhappy customer or even an unsatisfied employee.
This is a very good article that conveys the same with statistics http://www.marketingprofs.com/charts/2011/4669/bad-news-about-brands-travels-fast Hence, though Word-of-Mouth Marketing is a very powerful tool to create positive impact, if the product/service is bad or the brand promises are not fulfilled, it could backfire and hurt your business real bad.

The term we used to use for such a thing is Black Propaganda.
It's your basic rumor mill that spread negative notions about a product, person, or establishment.
We get an u)healthy overdose of this during elections, when one candidate will try to smear another politician's name with bad publicity.
They don't have to be true.
The damage is already done before the truth is uncovered.
And the crowd does love controversy -- dirtier the mud-slinging, the more entertained and hooked the masses are.
There was another instance a few decades back when a rival hamburger chain spread lies about a local establishment's burgers being made of worm meat instead of beef.
Needless to say, the local food chain suffered immense losses and had to devise an incredibly crafty counter-measure to regain the public's trust.
The worst thing is, the rumors were completely unfounded and preyed upon the public's gullibility and demand for gossip.
However, focusing more on the genuine word-of-mouth, a brand's quality, consumer relations, and corporate identity will reflect what feedback it will get from its patrons.
Here, I think, the golden rule applies to the letter.

interesting question indeed.
I must state that with recent experience in the Sample Central in DFC which has closed down last March, I have completed over 30,000 opinion based survey for trialed products and services.
The theme was "Word-of-mouth, Have your say".
on quantified level, we have not noticed big damage even for products that have reached over -40%.
that means 4 out of each 10 customers were unsatisfied with the product or service.
the damaging will start taking place when this word-of-mouth eco online in logs and in private parties and social gathering.
the study conducted have indicated that peoples will not recommend such brand and they will share their bad experience.
This in itself is damaging to the brand, the big damage is when the brand do nothing for 3 - 6 years in which that voice and bad reflection of the brand reach over 40% of the population (average spread time).
a bank for example with bad service, will spread the word-of-mouth like flood of water and switching will start to happen to other banks.
result will be loss in market share of that bank and no matter how big the growth is happening, the loss is going to be grater.
I hope that wasn't too technical..
:-)

I think it's simply when the customers feel the lack of trust with the company also, when the company didn't keep there promises with there customers

When you are talking without knowing well about the business you are trying to promote and not confident enough to lift up company's goals / objectives then you cannot endorse your company's business well...for sure it's a total destruction...

by giving wrong information on products and services.