Streaming video game service OnLive has been sold out in a manner that means investors – including HTC – will lose their cash. But the business will continue and customers are being told that their investments will be unaffected.

The idea of OnLive was to take the cloud computing model to gaming. Much of the heavy processing work is carried out on remote servers, with the user’s device simply needing to display the video and to feed back the user’s controls. That meant console quality games could run not just on PCs and Macs, but also on tablet devices and through low-spec set-top boxes.

The company appears to have been running out of cash and is struggling to interest new investors. The moves follow Sony buying out OnLive rival Gaikai, which may have been a sign that even those investors who saw potential in the concept had moved on.

Rather than simply declaring bankruptcy, OnLive used a restructuring mechanism called Assignment for the Benefit of Creditors. It effectively means selling every company asset except staff contracts to a new ownership group, headed by investment firm Lauder Partners.

The entire staff was then made redundant, though around half have been immediately hired by the new firm under the same employment terms, while most of the rest will be offered consulting positions in return for stock options in the new company or hired back later on.

While the original OnLive company technically remains in existence, the absence of assets means its stock is effectively worthless. There was no compensation for any stockholder, whether they be a corporate investor, a company executive or an employee. Major investor HTC has already confirmed it will list a $40 million loss to reflect the money it put into the firm.

The key for the firm’s 2.5 million subscribers is that they should see no immediate changes. All subscriptions carry over to the new firm, as do any purchased games.