The Department of Trade and Industry Insolvency Service and the Treasury want to end the privileged status of banks and the Crown when companies go bust. This would mean that all creditors have an equal chance of recovering money.
Rudi Klein, chief executive of the Specialist Contractors Group, welcomed the proposals. "If we are all equal, subcontractors can grab the money they are owed," he said.
Other senior lawyers welcomed the move. Neil White, Taylor Joynson Garrett's head of construction, said it would help small construction companies get through hard times.
He said that government creditors such as Customs and Excise and the Inland Revenue often moved in quickly to reclaim debts from troubled companies.
White said that an equal status ruling would mean that banks and the state would be less likely to recoup all the money owed to them. This would remove their incentive to liquidate companies in difficulties.