Hong Kong urgently needs a legal framework for rescuing troubled companies, otherwise more potentially salvageable companies are likely to fail and more jobs will be lost, the Hong Kong Society of Accountants (HKSA) warned yesterday. Unveiling its response to a Government consultation paper on proposals to introduce provisional supervision as an alternative to the large number of liquidations sparked by the recession, the HKSA said it was essential to provide legal backing for corporate rescues. 'Informal rescues don't have the backing of the legislature or the courts, so it's very difficult to retain some creditors . . . they can always use the threat of liquidation to blackmail other creditors,' John Lees, chairman of the HKSA Insolvency Practitioners Committee, said yesterday. 'What we need is a legislative framework for corporate rescues and provisional supervision gives us that legal framework. 'Unless it's introduced quickly there will be a lot more liquidations in Hong Kong and subsequently a large rise in unemployment.' The Government's proposals, drawn up by the Law Reform Commission (LRC) in 1996, aim to give companies breathing space from creditors while a rescue plan is arranged. They have been slow to reach the Legislative Council due to concerns about how employees would be treated under provisional supervision. As it stands, the Protection of Wages on Insolvency Fund (PWIF) - to which all companies in Hong Kong contribute - can only pay out to employees when a company is put into liquidation. The consultation paper invited submissions on four suggested options for resolving incompatibilities between the LRC's proposals and existing labour laws. The first option - and the one which has won most support among insolvency practitioners - is that the scope of the PWIF be widened to accommodate employees affected by provisional supervision. However, the Government has expressed concern that the fund could be turned into a corporate bailout fund, its resources might be exhausted, or it could be abused by unscrupulous directors. The HKSA said that without corporate rescue, a company would be forced into liquidation, all jobs would be lost anyway and the PWIF would possibly face large claims from 100 per cent of the workforce. Under provisional supervision, on the other hand, a large number of employees would be likely to keep their jobs - meaning that the overall effect on the PWIF should be positive - and there would be sufficient checks to minimise abuses, the HKSA said. 'Option A would see less demand on the fund, companies will be saved and a lot of jobs will also be saved,' Mr Lees said, adding that the other options were basically unworkable. Jeremy Barr, a director of accountants BKR Lew & Barr, said 'it would be very useful' if the proposals could be passed by Legco in the current session. 'If it is delayed further, it would be very sad,' Mr Barr said.