An attempt is being made to close a legal loophole which allows banks to seize and sell off property from small businesses which run into financial problems.

George Eustice, the Conservative MP for Camborne and Redruth, has tabled a private members bill proposing changes to the 1925 Law and Property Act.

Mr Eustice, a former press chief to David Cameron, said he wanted to rebalance the law in favour of enterprise and away from the banks.

He said his own research revealed that requests from lenders to call in receivers under the Act had rocketed by 850 per cent in the past few years.

Mr Eustice said: "This bill would return the role of receivers to that envisaged in the original Act which would reduce litigation and encourage banks to work with their customers to find solutions.

"It would close loopholes which have been exploited by the banks since the 1980s allowing them to aggressively enforce their security – and it would curtail sharp practice."

The secured lending reform bill would reduce the power of receivers by taking away their ability to sell assets, shifting the emphasis to receiving money.

It would bar banks from gaining a possession order over a property – until all other counter-claims lodged by a borrower had been resolved in the courts.

Mr Eustice says the South West, with its "predominance" of small businesses, is particularly susceptible to such actions.

He says constituents have raised the issue many times with him since his narrow election victory in May.

And he knows from bitter experience how it feels to be targeted in this way: the family-owned organic farming business in Gwinear, Trevaskis Farm, was subject to a claim by the bank.

"It is no secret that we have had experience of this type of arrangement – though thankfully the business went on to thrive," he said.

The coalition Government is under pressure to protect struggling companies from banks looking to sell their assets and recoup loans.

From 2007 until 2009, when the credit crunch drastically reduced lending, the total number of insolvencies in England and Wales rose from 12,507 to 19,077.

The Conservatives had talked about a widespread reform of the insolvency system and David Cameron called for the introduction of US-style Chapter 11 rules in 2008.

These give companies "breathing space" to restructure without having to face liquidation in difficult times.

However, since the election they have quietly dropped plans for sweeping reform.

Bankers challenge Mr Eustice's view that a legal loophole has allowed banks to seize security unfairly.

They argue that it has been borrowers that have exploited loopholes by nullifying loan security – such as making a spouse a protected tenant who would not be subject to the loan terms.