For the record, I've found the following workaround work for HSQLDB 2.2.x. Not a lot of testing yet, but seems OK for now.

Overriding the HSQLDialect of hibernate 4.2.x this way works for us:
This puts If exists before the tablename, and adds CASCADE after the tablename.

public class MyCustomHsqlDialect extends HSQLDialect
{
...
	@Override
	public boolean supportsIfExistsBeforeTableName()
	{
		return true;
	}

	@Override
	public boolean supportsIfExistsAfterTableName()
	{
		return false;
	}

	@Override
	public String getCascadeConstraintsString()
	{
		return " CASCADE ";
	}
}

Don't hesitate to let me know if you feel there's some caveat with this.

HTH