When the nanobots rebuilt Red Dwarf from the planetoid that they had created, one of their restorations was to repair all of the ship's computer systems. This caused a fully functioning copy of Holly to be made to run the ship. He looked like the senile version of Holly, but had an elongated head that implied his superior intellect.
Starbug was sucked into an airvent on the enlarged Red Dwarf and careened out of control through the rapidly shrinking bowels of the ship. It eventually crashed into the cargo bays and exploded, taking out some of the computer hardware in the process. The new Holly was taken offline and had to await repairs. (RD: Back in the Red I)
When the rebuilt Holly was finally restored to working order, he proved to be hugely intelligent and able to outthink his senile counterpart. He tricked the Starbug crew into believing that they had escaped so that he could observe their actions. He determined that they were innocent of stealing Starbug and smuggling stowaways, but guilty of abusing classified information. They were imprisoned in The Tank while he ran the ship for Captain Hollister, with the original Holly using the Holly watch to maintain contact with the crew while hiding in the computer systems. (RD: Back in the Red III)
Rimmer says to Katerina Bartokovsky that the Holly is offline to due to water damage, and the Skutters are trying to dry out his databanks. It is not clear which version of Holly Rimmer means, but neither version of Holly has been seen since. (Back to Earth)