Liquidators have urged the government to speed up the legislative process for a proposed corporate rescue bill to allow troubled companies more time to find white knights.
They say the city lags other markets in terms of a liquidation law for firms.
But they warned that the payment of outstanding wages and benefits to employees would remain the key issue to determine if lawmakers would back a government bill.
The government has announced that it will submit a bill to the Legislative Council next year, so that Hong Kong will have a law similar to Chapter 11 bankruptcy legislation in the US.
This law gives US companies breathing space to reorganise and find new investors so it can eventually repay its creditors and prevent a single creditor from winding it up.
Hong Kong currently has no bankruptcy protection law, so a single creditor can wind up a company.
"Most countries, including mainland China, have bankruptcy laws. This makes Hong Kong legislation very outdated," said Alan Tang Chung-wah, a partner and head of specialist advisory services in the Hong Kong office of mainland accounting firm ShineWing. He said Hong Kong very much needed a new law.
Johnson Kong Chi-how, chief executive of accounting firm BDO Hong Kong, said the lack of a proper corporate rescue law also meant a single creditor alone could apply to wind up a company. "This is not ideal as this does not provide sufficient time for a company to find a new buyer or try other methods to rescue its business," Kong said.
Kong noted that in the US, many companies in financial trouble escape liquidation as the Chapter 11 law gives them time to organise a turnaround, a move that saves businesses and ultimately jobs.
The proposed Hong Kong corporate rescue bill, if approved by lawmakers, would give ailing companies six months to restructure or find a buyer. During the grace period, the company cannot be wound up by creditors.
The major obstacle to a law being approved is how to handle outstanding payments owed to employees, despite three rounds of consultation and countless debate in Hong Kong over the past two decades.
The Law Reform Commission first proposed a corporate rescue procedure in 1996. The government submitted its first draft to the Legislative Council in 2000, but it failed to win support from accountants, lawyers and the business community, who opposed requiring firms to pay all employees their unpaid wages and entitlements in full before they could begin seeking a rescue plan. The professionals said companies that could comply with this were not in trouble.
In 2003, the government added a cap on employee payouts - of HK$36,000 for a basic salary and HK$270,000 for all other payments. It was rejected by employees and unionists, and law reform was shelved.
The global financial crisis in 2008 and 2009 prompted the government to revive the idea. A third consultation was undertaken from late 2009 into 2010 with a proposed law that would allow a corporate rescue to be started, with workers to be paid in phases within a year of this process taking place.
Democratic Party legislator Sin Chung-kai said his party supported the change as long as employees received a reasonable payout under a Chapter 11-style corporate rescue.
"How to handle the unpaid salary owed to employees of companies facing a corporate rescue would remain the major challenge for whether this bill would be passed by lawmakers," Sin said.
"Of course, we would support a law that would help troubled companies [undertake] debt restructuring or find a buyer. However, if such a corporate rescue plan would lead to a majority of staff being laid off without receiving any payment, that would be worse then letting the company be wound up," Sin said.
"We would not support any reform that lets employees suffer more than if the company was wound up."