May be FoxSqz doesn't release the handles for open files after foxsqz(...). Did you try to DELETE the file, just for testing?

IF NOT "foxsqz5" $ LOWER(SET("LIBRARY"))
   Set Libr To foxsqz5 Additive
ENDIF
FOR iloop = 1 TO lnCount
    lnErrorCode = foxsqz("SCQ", lcToPath + "outfile.zip", lcFromPath + aFiles[iLoop,1])
    ERASE (lcToPath + "outfile.zip")
    ERASE (lcFromPath + aFiles[iLoop,1])
Next
RELEASE LIBRARY foxsqz5.fll

DON'T try this on real files, make some temp dir, copy a few files there and try this code to see what happens and where (if any) an error will arise.