OnLive, the pioneer of on-demand cloud gaming that declared its insolvency last week, has much more trouble to handle than originally known. The company was running short of funds at the time of insolvency, and owed around $40 million to its creditors. As reported by the firm handling the insolvency procedure, OnLive failed to find a buyer despite shopping itself around and was facing a complete shutdown of its services.

“It was a company that was in dire straits. It only had days to live in terms of cash flow and the like,” said Joel Weinberg, CEO of Insolvency Services Group, whose role in the OnLive insolvency process is similar to that of a bankruptcy trustee. “Something had to be done immediately or there would have been a hard shutdown, which would have been a disaster.”

After declaring the insolvency, OnLive’s assets were transferred to ISG, and will be used to pay the company’s outstanding debts. Interestingly, ISG sold OnLive’s operating assets and Intellectual property to a new company having name as OnLive itself. This new company ‘OnLive’ is funded by Lauder Partners. Though the amount of selling was not disclosed, Weinberg expects to be able to pay creditors only 5 to 10 cents on each dollar OnLive owed. This shows that OnLive was in a really bad shape and not able to pay even after selling all its assets.

The entire gaming industry was shocked when OnLive revealed its plans to file for insolvency. The first signs of trouble started to manifest when a primary competitor, Gaikai, got a foot in the door with Sony and had OnLive dropped from their devices. The increased market competition, huge debt, and not being able to get consumer adoption led to the failure of OnLive. The company was operating at huge costs with few consumers using their services. But it’s not that OnLive did not try to keep the ship sailing. The company released major updates, showcased new games, and new features at E3 event in June. It performed several major updates to their In-Browser Gaming capabilities which enables publishers/retailers to offer one-click, instant play of hundreds of games from their top-tier library or any partner-provided game, in nearly any PC or Mac® browser, and soon, from browsers of OnLive-enabled TVs, tablets and phones. It tried dominating the gaming for SmartTVs, but even that could not save OnLive from insolvency.