A policy think-tank close to the chief executive wants the government to enact a law similar to one in the United States to allow troubled companies a cooling-off period during which creditors cease collection attempts to enable the firms to make a fresh start. Anthony Wu Ting-yuk, chairman of the Bauhinia Foundation Research Centre, said many Hong Kong companies were sound but they were suffering cash-flow problems. This was because local banks were reluctant to lend or were even withdrawing loans already offered over fears that the global financial crisis might impair their ability to repay. 'While the government has made the right decision to enhance the loan guarantee scheme for small and medium businesses, the government should enact a law similar to chapter 11 of the United States bankruptcy code, which gives a breathing space for troubled companies to reorganise their debts during a cooling-off period,' Mr Wu said. When a troubled company in the US is unable to service its debt or pay its creditors, the firm or its creditors can file with a federal bankruptcy court for protection under chapter 11 of the bankruptcy code. In most instances the debtor remains in control of its business operations and the court can grant complete or partial relief from most of the company's debts for a period during which all creditors must cease debt-collection attempts. 'Among the local banks which provide loans to companies, smaller banks used to be the first to call loans from debtors and forced bigger banks to follow suit,' Mr Wu said. He said if there was a similar law in Hong Kong, good-quality local companies would be able to survive the financial crisis. Mr Wu, deputy chairman of the Hong Kong General Chamber of Commerce, said such a law would better help cash-strapped companies in Hong Kong than loans provided by the government. 'I have raised the idea with some bankers recently and they were quite positive about it,' he said, adding that he would write to the government on behalf of the Bauhinia Foundation next week to put forward the proposal. Clement Chen Cheng-jen, chairman of the Federation of Hong Kong Industries, welcomed Mr Wu's proposal. 'We should do whatever we can do to help local companies to survive the financial crisis. I hope legislators can help fast-track passage of such a law,' he said. Hong Kong businesses and exporters yesterday urged the government to do more to unfreeze the credit market.