In most cases hotel guests aren't prepaid. There will usually be a credit card hold but the guest hasn't actually paid yet. Innkeepers generally have the legal right to refuse service for (almost) any reason and simply not charge the guest for any additional nights.

> What about their legal requirement to deliver what was paid for?

The guests don't have a contract with the hotel operator. Only with Sonder. The guests should have claims on Sonder. But it's bankrupt, so YMMV.

The company is bankrupt. It means they can't/won't/didn't honour their promises.