I think this wording may be a bit misleading. I think the challenge is more subtle, let me walk through a scenario.
100 shares exist, all owned by person A. They lend all the shares to a short-seller, who sells them to B. Then B lends 40 of those shares back to the short seller, who sells them to C.
Now 140% of existing shares are shorted. But 240 shares are "owned" in some sense. A "owns" 100 shares and B "owns" 100 shares and C "owns" 40 shares.
What's not clear to me is which of these shares are available to be bought by the short seller. I assume you can't sell your shares if they're loaned out. So the short seller can first buy 40 shares from C and deliver to B. Then he has to buy 100 from B, including the shares he just delivered, and give them all to A.
What happens in the case where the short reaches it due date and neither B nor C want to sell?
Intuitively I would say that the short seller goes bankrupt, A doesn't get any of the stuff he loaned out back, B ends with 60 stocks while C has 40. Is that what happens in reality?
