The Free Enterprise Group of Tory MPs, believes the proposed changes, including a US-style Chapter 11 bankruptcy protection process, would help to protect small businesses.

In the US, an insolvent business filing under Chapter 7 would cease trading and be liquidated, but under Chapter 11, the borrower remains in control of the day-to-day running of the business as a "debtor in possession".

Under Chapter 11 there is an "automatic stay", which protects the business from being sued by other creditors, as well as mechanisms that enable the business to cancel contractual obligations.

The Tory backbencher’s report, entitled Defending the rights of those who take risks, recommends that courts be given the power to grant a discretionary stay or moratorium rather than the automatic stay given under the US system, and calls for a review of the way that "banks have taken new rights for themselves under the evolution of their standard terms and conditions".

A moratorium period for companies that are struggling financially was previously proposed as part of an Insolvency Service consultation launched in 2010; however, the coalition Government decided in January of this year that there was no need to change the current system.

The report claims that the current system gives banks disproportionate power over their small business customers due to abuse of the 1925 Law of Property Act (LPA). Under the Act banks can appoint an LPA receiver over a legal charge, an appointment that is unregulated – and which is guided largely by contractual terms and conditions.

Furthermore, the report says that banks have gradually extended their rights via their contractual terms and conditions to give LPA receivers general powers of sale, to set aside the limit on the fees that a receiver may charge and to load all associated costs on to the borrower.

Data published by the Council for Mortgage Lenders showed that the number of receivers instructed under the LPA Act jumped from under 1,000 in the first quarter of 2008 to 4,500 in the first quarter of 2009.

The report recommends giving all businesses access to protection under administration and limiting the power of receivers; this, the report says, would help to rebalance the relationship between banks and businesses and foster a change in culture where "the value of failure is recognised and entrepreneurs are not discouraged from trying new ideas and taking risks."

The report admits the US Chapter 11 system "is no panacea" but says that it applies to all businesses and partnerships, while in the UK, administration is only applied to limited companies and partnerships and "there are tens of thousands of small businesses who have no protection at all".

Probably the highest profile company in the print industry to have used the Chapter 11 process is Eastman Kodak, which together with its US subsidiaries filed for Chapter 11 bankruptcy protection in January after running out the money it required to restructure the business.

Kodak wants to transform its business to focus on its most valuable lines, which include the manufacturer's Stream inkjet printheads and Prosper presses and imprinting systems.

Kodak chief executive Antonio Perez called the move: "a necessary step and the right thing to do for the future of Kodak".

He said: "Chapter 11 gives us the best opportunities to maximize the value in two critical parts of our technology portfolio: our digital capture patents, which are essential for a wide range of mobile and other consumer electronic devices that capture digital images and have generated over $3 billion of licensing revenues since 2003; and our breakthrough printing and deposition technologies, which give Kodak a competitive advantage in our growing digital businesses."

Frances Coulson, President of insolvency trade body R3, said of the report: "Our insolvency regime performs better than America in terms of speed and returns to creditors.  Chapter 11 works better for larger firms in the States anyway.

"Our experience is that while some experience of failure can be valuable, the vast majority of business failures are caused by poor management.

"We do not agree with the open ended debtor in possession proposals as this would have a negative impact on bank lending. We already have debtor in possession arrangement such as Company Voluntary Arrangements (CVA) where the existing management stays in place, and we have many of these in the retail sector. There is an interim order for sole traders if necessary. 

"We do think that greater protection should be given to businesses from the actions of suppliers who can demand ‘ransom payments’ on learning of the insolvency or increase existing tariffs. This can derail a potential rescue and R3 has been leading a campaign called ‘rescue to ransom’ to address this."