Downturns can be triggered in many ways. Some are internal, such as the departure of a top salesperson, the loss of a key account, or a major customer scaling back its print marketing budget. Others stem from external forces, like supply shortages, price volatility in paper, or broader market disruptions such as trade wars or public health crises.
Regardless of the cause, the early stages of financial distress often bring confusion, wishful thinking, and costly missteps. Graphic Arts Advisors’ Special Situations Practice has identified five common misunderstandings that arise during periods of financial instability—and offers key insights on how to address each one.
Misunderstanding 1:
“There are no personal guarantees on loans, so there’s nothing to worry about.”
Reality Check:
Even without a signed personal guaranty, owners may still face personal liability. Creditors can argue that certain actions—such as incurring new debt when insolvency is apparent—constitute misconduct, exposing officers to claims outside the protection of the corporate veil. These situations often lead to what GAA calls a “backdoor personal guaranty.”
Guidance:
A detailed analysis of contracts, creditor claims, and asset ownership is essential to developing a risk-mitigated plan for either an M&A exit or an orderly wind-down. Non-contractual liability issues arise in approximately one-third of the special situations reviewed by GAA. Many can be avoided with early, experienced intervention.
Misunderstanding 2:
“Our accountant says we have enough assets to cover the debt during M&A.”
Reality Check:
Accountants may base assessments on static balance sheets—but a true exit requires deep industry context. In our evaluations--often sought as a second opinion--we find that there is a general lack of insight among professionals around:
Guidance:
Generalists often miss the hidden value in customer relationships and data assets. In one case, a client was advised to liquidate immediately—but an expert second opinion revealed seven figures in intangible value. That value would have been lost without industry-specific insight into distressed M&A.
Misunderstanding 3:
“We’ll close the company and move the customers to a new venture in exchange for equity.”
Reality Check:
Customer relationships, data files, estimates, and job histories are corporate assets—not personal ones. While customer loyalty is important, the legal and financial value of those relationships belongs to the original entity and its creditors.
Guidance:
Attempting to transfer these assets without proper planning can result in litigation. However, if handled correctly, customer goodwill can be a powerful asset in a non-bankruptcy wind-down or M&A scenario that benefits all stakeholders, including creditors.
Misunderstanding 4:
“The leasing company will just take back the equipment and we’ll be done.”
Reality Check:
The occasional instance may arise where surrendering the equipment back to the lender is legally documented as the final and full settlement, however returning leased equipment rarely ends the obligation. Lenders typically pursue the full value of the lease, even after repossession, unless a formal settlement is negotiated.
Guidance:
Lease resolution requires negotiation and nuance. GAA’s experience shows that tradecraft and situational leverage—not boilerplate contract terms—often determine the outcome. Each lease scenario must be evaluated on its own facts.
Misunderstanding 5:
“We’ll shut the doors—creditors won’t get anything.”
Reality Check:
This approach invites serious legal consequences. Creditors may pursue officers for breach of fiduciary duty or fraud, especially if they detect an intent to dodge obligations. Conversely, a fair, transparent plan for addressing liabilities often results in creditor cooperation.
Guidance:
Stakeholders are more likely to support an orderly wind-down when they see clear intent to treat obligations responsibly. Early engagement with specialists in industry-specific wind-downs and expertise in special situations is key to building trust and avoiding litigation.
Closing Thoughts
Companies in distress need more than a generalist’s advice. Misunderstandings about liabilities, asset value, and creditor rights can turn an avoidable situation into a crisis. GAA’s Special Situations practice brings the printing industry expertise required to assess the facts, identify options, and create actionable paths forward—whether through M&A, restructuring, or a non-bankruptcy wind-down. Expecting the unexpected and preparing for the worst before it arrives can make all the difference.
Regardless of the cause, the early stages of financial distress often bring confusion, wishful thinking, and costly missteps. Graphic Arts Advisors’ Special Situations Practice has identified five common misunderstandings that arise during periods of financial instability—and offers key insights on how to address each one.
Misunderstanding 1:
“There are no personal guarantees on loans, so there’s nothing to worry about.”
Reality Check:
Even without a signed personal guaranty, owners may still face personal liability. Creditors can argue that certain actions—such as incurring new debt when insolvency is apparent—constitute misconduct, exposing officers to claims outside the protection of the corporate veil. These situations often lead to what GAA calls a “backdoor personal guaranty.”
Guidance:
A detailed analysis of contracts, creditor claims, and asset ownership is essential to developing a risk-mitigated plan for either an M&A exit or an orderly wind-down. Non-contractual liability issues arise in approximately one-third of the special situations reviewed by GAA. Many can be avoided with early, experienced intervention.
Misunderstanding 2:
“Our accountant says we have enough assets to cover the debt during M&A.”
Reality Check:
Accountants may base assessments on static balance sheets—but a true exit requires deep industry context. In our evaluations--often sought as a second opinion--we find that there is a general lack of insight among professionals around:
- Customer obligations such as deposits, postage, and work-in-process at the time of business transition.
- The hidden costs of disposing of equipment, including labor to run a press for showing it to equipment buyers and keeping the lights on during the auction process.
- The working capital necessary to implement the orderly wind-down, whether or not there was an M&A closing.
Guidance:
Generalists often miss the hidden value in customer relationships and data assets. In one case, a client was advised to liquidate immediately—but an expert second opinion revealed seven figures in intangible value. That value would have been lost without industry-specific insight into distressed M&A.
Misunderstanding 3:
“We’ll close the company and move the customers to a new venture in exchange for equity.”
Reality Check:
Customer relationships, data files, estimates, and job histories are corporate assets—not personal ones. While customer loyalty is important, the legal and financial value of those relationships belongs to the original entity and its creditors.
Guidance:
Attempting to transfer these assets without proper planning can result in litigation. However, if handled correctly, customer goodwill can be a powerful asset in a non-bankruptcy wind-down or M&A scenario that benefits all stakeholders, including creditors.
Misunderstanding 4:
“The leasing company will just take back the equipment and we’ll be done.”
Reality Check:
The occasional instance may arise where surrendering the equipment back to the lender is legally documented as the final and full settlement, however returning leased equipment rarely ends the obligation. Lenders typically pursue the full value of the lease, even after repossession, unless a formal settlement is negotiated.
Guidance:
Lease resolution requires negotiation and nuance. GAA’s experience shows that tradecraft and situational leverage—not boilerplate contract terms—often determine the outcome. Each lease scenario must be evaluated on its own facts.
Misunderstanding 5:
“We’ll shut the doors—creditors won’t get anything.”
Reality Check:
This approach invites serious legal consequences. Creditors may pursue officers for breach of fiduciary duty or fraud, especially if they detect an intent to dodge obligations. Conversely, a fair, transparent plan for addressing liabilities often results in creditor cooperation.
Guidance:
Stakeholders are more likely to support an orderly wind-down when they see clear intent to treat obligations responsibly. Early engagement with specialists in industry-specific wind-downs and expertise in special situations is key to building trust and avoiding litigation.
Closing Thoughts
Companies in distress need more than a generalist’s advice. Misunderstandings about liabilities, asset value, and creditor rights can turn an avoidable situation into a crisis. GAA’s Special Situations practice brings the printing industry expertise required to assess the facts, identify options, and create actionable paths forward—whether through M&A, restructuring, or a non-bankruptcy wind-down. Expecting the unexpected and preparing for the worst before it arrives can make all the difference.
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