A simple Google search indicates that you often don't need to cover a short if a company is delisted, and if it's not delisted then you can always offer over the current value (even if the current value is zero) to get some of the worthless stock, so I don't see how covering the short if the company implodes is a problem.

Unless you have expertise that it's not that simple? Or a source saying otherwise? (Not an attempt to be snide, but an honest opening for counter evidence, I'm not an expert in this).

In some markets, such as Hong Kong, instead of being delisted, suspected frauds are often halted (the stock cannot be traded). So you might end up paying the borrow fee for years, even though you were right about the company being a fraud.

See https://www.reuters.com/article/muddy-waters-asia-short-sell...