Reorganization through workout plans are informal and less costly than formal bankruptcy filings, but informal reorganization also leads to certain problems.

Consider the following case:

Klose Corp. is worth $15 million as an operating company. The company is in financial distress, and if it were liquidated, the companys value would only be $8 million. Messi Inc. owns a 30% stake in Klose.

To reduce the total value of the companys assets, Messi buys assets from Klose at a lower price than the true market value of the assets. The loss due to the difference between the market value of Kloses assets and the price paid by Messi is left for creditors to bear.

Klose Corp.s situation represents the:

Holdout problem

Fraudulent conveyance problem

Common pool problem

Federal bankruptcy law helps deal with the problems mentioned in the preceding case. The bankruptcy court imposes the reorganization plan on creditors in a bankruptcy, thus reducing the incentive for creditors to hold out through .

A cramdown

the automatic stay prevision

the fraudulent conveyance statute