Holding a Short Position on a Delisted, Bankrupt Company
Quite simply, if you have an open short position in a company that gets delisted and declares bankruptcy, then you don't have to pay back anyone because the shares are worthless.
Companies sometimes declare bankruptcy with little warning, while other times it is a slow fade to the end. If you didn't close out your position before the shares stopped trading and became completely worthless, then you may have to wait as the company is liquidated before paying off investors.
However, the short seller owes nothing—zero, zip, nada. Obviously, this is the best possible scenario for a short seller.
Eventually, your broker will declare a total loss on the loaned stock, and your debt will be canceled with your collateral being returned.
When you see a company hire Alvarez and Marsal... it is a no brainer to short! And no that BS to cover is laughable.
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