Tory leader David Cameron outlined the proposals in a speech to the CBI this morning saying the proposals were designed to stop companies "going into liquidation unnecessarily".
He said: "[Liquidation] isn't good for the companies, many of which are actually fundamentally sound. This isn't good for the banks, which lend these companies money. And it's not good for employees – who face being laid off.
"We will consult on taking the best aspects of the American Chapter 11 system and give good companies breathing space to allow them to rescue or restructure the business in the face of the credit crunch. This change will ensure that fewer good companies end up in liquidation - and fewer people lose their jobs through no fault of their own."
The Chapter 11 bankruptcy procedure in the US enables a company to reorganise through the sale of assets and to access debtor in protection funds, in order to enable it to trade during its period of creditor protection.
Companies are often in Chapter 11 for more than a year. The incumbent management team remains in place but all big decisions, such as the sale of assets, must be approved by the bankruptcy court.
Nicholas Mockett, of Europa Partners, said he has "mixed feelings" about the introduction of Chapter 11 in the UK.
"There are benefactors, particularly in the form of the employees of the company in question, and companies which fail through no fault of their own – for example due to a major customer collapsing or an exogenous shock, such as a terrorist attack," he said.
"However, Chapter 11 interferes with the efficient market. If a company is not attracting sufficient customers or able to operate profitably, it needs to exit the industry. Otherwise there will be overcapacity and profit margins will suffer across all players in the industry – hence the job losses may simply be spread and not grab the headlines.
"By entering chapter 11, a company can dump liabilities and therefore has an unfair advantage over competitors which have traded more healthily or responsibly."
Former chief executive of Premier Paper, Martyn Eustace, added: "I think for large and complex organisations, a Chapter 11 arrangement may be the mechanism to unravel a company's financial situation and then seek a buyer.
"For many in the printing industry I wonder whether such an arrangement is appropriate given the relative straightforwardness of the business and, very often, very clear reasons for a company's failure: i.e. a long period of poor profitability or losses accompanied by a very high level of debt.
"In many such businesses it really is time to call it a day. In an industry where there is so much overcapacity 'survival of the fittest' will be the way forward. I cannot see the industry welcoming any proposals which seek to give life to those who have failed."
David Cameron proposes Chapter 11 style system in UK
Chapter 11 style creditor protection procedures could be introduced in the UK should the Conservatives win the next general election.