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Leon Atkins argues that Ireland's harsh and punitive attitude to those who go bankrupt is outdated and ultimately makes us uncompetitive.

This time last year, one of those slightly less aggressive English celebrity chefs bared his teeth and, in an act of defiance at the attitude of British (yes, British) banks to lending, let his restaurant business go into administration. What was so offensive to Anthony Worrall Thomson that he should react that way? In short, his bankers refused to extend his company's overdraft without a personal guarantee and, quite simply, Worrall Thomson wasn't prepared to give it. "I'm not of the age where I can give a personal guarantees and I didn't want to jeopardise the future of my family," he said. Maybe Worrell Thomson had a point, although the 23 staff who lost their jobs, as a consequence, might disagree.

Although the prevalence of personal guarantees in Ireland may be the subject of much lamentation, their general use in relation to corporate-bank debt around the world was, and remains, commonplace; but what place should they have now, particularly given where they have got us?

Limited liability for companies was a child of the mid-19th century, created as progressive reform to facilitate free enterprise, and hence the corporate veil was born. But, at the time, it was argued that such a measure should not be a privilege for shareholders and instead would be a right taken away from creditors.

 This argument has a particular resonance today when company creditors include, in effect, the Irish taxpayer who, unwittingly, has become the ultimate owners of our banks. Thus, when the chairman of business banking at RBS and NatWest recently said: "I don't think it is unreasonable that somebody who borrows money should pay it back", he may have been reflecting public sentiment. But when a bank lends to a company, who really should be the ultimate re-payer of the debt?

In answering this question, there is a deep and long-term issue that we need to consider. Ireland's future is going to be dependent on growth and, whether we like it or not, a good deal of this is going to be led by entrepreneurs, the vast majority of whom are not going to be multi-millionaires but everyday folk wanting to make a living and do well for themselves.

No surprises then that new enterprise is going to need to be supported by borrowing. But if the price of borrowing extends not just to interest rates and charges, but also to a piercing of that corporate veil and so the potential of losing everything that is personal (and I don't just mean assets), then the chances are that Joe Soap may not bother at all, at least not here. So, bad news for Ireland's recovery.

It is, of course, right that there should be a sensible balance struck between encouraging growth through corporate structures that limit personal downside in ventures and protecting lenders from non-payment of borrowings, all based on an understanding of business risk and the determination of appropriate collateral according to the stakes for the bank, the borrower and its shareholders.

Conversely, complete resistance to personal guarantees as a matter of public policy is plainly not right. If the circumstances suit that a personal guarantee genuinely is appropriate and all the parties agree to it, then all well and good (provided that there really is value in the personal guarantee). On the other hand, a liberal and laissez-faire use of personal guarantees to prop up credit decisions or make the bank feel comfortable isn't workable. It's bad for business and bad for banks (just look at where it got us).

However, a consideration of personal guarantees cannot be concluded without also understanding the downside risk for the guarantor who has to assess the risk against the potential upside in the deal.

 So let's go back to the corporate veil and why it is of particular import here in Ireland. Like most growth modern economies, we have embraced the capitalist model and, in recognition of the value of free enterprise and the need to encourage it, created a corporate legal framework which recognises that from time to time, businesses hit financial crises and for the better good, need a legal dig out. In these cases, the law provides means by which the troubled company is salvaged or wound-up, sharing among creditors what is available and moving on without indicting the owners and managers (provided that they are not delinquent). This model is well established in western economies and, on the whole, works to the ultimate economic advantage of most.

But if you are an individual and you can't pay your debts, Ireland remains stubbornly medieval and so is far from encouraging of individual enterprise. Here, the inability to pay debts retains a status of near criminality, with debtors in some circumstances still going to jail - something which our EU membership should have halted a very long time ago. The result is that we can punish individuals who incur debt in a genuine effort to build a business.

To put this into perspective, under present legislation, a bankrupt can spend up to 12 years in the economic wilderness,  not being permitted to engage in business, or even the management of a business. In the UK, this wilderness period lasts for a year after which, the bankrupt can be discharged and allowed to pick up his or her life again quickly.

Those who think that the economic potential upside for an individual deserves the risky downside are missing the point. It boils down to this: if the downside risks here in Ireland of doing business are greater than they are elsewhere in Europe, then why do business here at all? In short, we become uncompetitive and some other nation benefits from us being a slave to perceived (and outdated) economic justice.

Personal guarantees have their place and they can be for everybody's benefit. But they must be used judiciously within a banking and legal framework that recognises that although business is not a risk-free activity, it will never be encouraged if the possible downside is penal.

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