Ultimately, I think that the proposed change is flawed and could lead to abuses/problems in other forms.
If the system annuls all of one’s ongoing ladder games, then “escapers” could exploit that to abandon losing games without impacting their kyu-dan rating.
If all of one’s ongoing ladder games are automatically resigned, then it makes it difficult for one to cleanly exit a ladder, as one may have to resign several ongoing games where the outcome is not quite clearly losing, and this would have an impact on the kyu-dan rating. One sort of work-around is to wait for an opportune moment when one has no ongoing games, or only ongoing games which appear to be losing positions, but that could be tricky to wait for, as more challenges may keep coming. A player could start cancelling all new challenges that they receive, while waiting for other games to finish, but that also has a perverse affect on the ladder (giving free climbs to anyone that just happens to challenge you, which is unfair to others below).
By the way, many years ago, leaving a ladder did cause one to resign all of their ongoing games. In that context, I had even previously proposed another sort of system for allowing more graceful ladder exits: [suggestion] "Limbo" State for Ladder Exits
On the other hand, some people are concerned about how harsh timeouts are punished (being removed from the ladder), so some view the current system as a way to soften that blow. One can potentially regain position by rejoining the ladder and finishing another ongoing ladder game.
Note: an even earlier implementation of the ladder simply did not remove players for timing out at all, but that eventually led to the site-wide ladders being clogged up with many inactive players that essentially gave free climbs to anyone that challenged them.