What happens to a short seller if there are no shares available for sale under any price when it is time to return the shares they borrowed?

External question — Quantitative Finance Stack Exchange Author: WirthLuce Original post: https://quant.stackexchange.com/questions/60761 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Assumptions: There is a limited number of shares in any given company. Someone that holds shares cannot be forced to sell them if they don't want to. In theory, it's possible for someone to buy out all shares in a company and hold them without ever agreeing to sell them, causing a short squeeze. What happens to a short seller if when it comes time return the shares they borrowed, there is no market liquidity left and the short seller (nor their broker) cannot buy the shares to return under any circumstances. Are there standard terms in the lending contracts that cover this scenario? Will it end in a lawsuit? Will it result in criminal charges? If they cannot return the shares, did they essentially "steal" them? Or is there some other "escape hatch"/penalty (perhaps exorbitant) they can pay instead? Note: I am only asking about the situation where there is literally no liquidity and shares for sale and absolutely no one is willing to sell for any price . I am also not talking about "failure to deliver" for the initial sale from e.g. "naked" short selling.