The most likely scenario would be for the lender to recall shares from the short seller, who would have to buy them in the market.
In liquidations, the current market value represents unknown future cash flows. Sometimes, those are larger than management reports because of the need to be conservative. I’ve have been involved in a number of liquidations. I have had more surprises on the upside versus downside.
A short seller otherwise would have to make those unknown future payments to the lender if not covered. Big risk in my view.
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