This happened tonight and I want to know what a ruling is on it.

Player 1 has an Arkham Asylum guard with a captive, he moves to the starting area. End turn.

Player 2 surrounds the AA Guard with his team. End turn.

Player 1's turn, AA Guard is cornered in:

x = starting area
0 = opposing characters
A = Arkham Guard

xxxxxxx
00xxxxx
A0xxxxx

The guard is at the edge of the map, with every adjacent square occupied by an opposing character.

Can the guard release his captive? Placing it in the nearest adjacent square behind the opposing characters? Or is he screwed until a square opens up?

I'd say this falls into the highlighted situation.

So according to the rule of occupancy, it just must be placed in another square. Not necessarily a LEGAL square (adjacent and in a starting area). But basically in the nearest square to the character.

Or, yes it's fine to release a captive even if you're surrounded with no adjacent unoccupied squares.

Good to know.