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 $10 million. The company currently carries $16 million of debt on its balance sheet.

Messi Inc. is one of Kloses creditors with a $3 million claim. Messi is pushing Klose to foreclose even when the value of the operating company is more than the total value of its liquidated assets.

1. Klose Corp.s situation represents the:

a.Fraudulent conveyance problem

b.Common pool problem

c.Holdout problem

2.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 _______ . a.the fraudulent conveyance statute b. the automatic stay provision c. a cramdown