Character.ai Files Chapter 11 to Pursue Sale with Disney as Stalking Horse Bidder

Chapter 11 Filing and Sale Process

Character Technologies Inc., operator of the AI entertainment platform Character.ai, announced on October 12, 2026 that it has commenced a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware. The filing is intended to facilitate a value-maximizing sale of all or substantially all of the company's assets. The company said it intends to continue operating its platform while the sale process is conducted.

In connection with the filing, the company submitted a motion seeking approval of bidding procedures to govern the sale process. The proposed procedures are designed to achieve the highest or otherwise best offers for the company's assets and ask the court to designate Disney as stalking horse purchaser for certain of the company's assets.

Disney Stalking Horse Agreement

Before the Chapter 11 filing, Character.ai entered into an agreement under which Disney Worldwide Services, Inc., an affiliate of the Walt Disney Company, will serve as stalking horse bidder for a non-exclusive perpetual license of certain company intellectual property and certain company claims. In exchange, Disney will pay $20 million and provide transition services using former company employees it has hired. These services are intended to help the company safely operate its platform for a limited period of time and support the sale process.

The transaction remains subject to higher or otherwise better offers under section 363 of the Bankruptcy Code.

Operations and Timeline

Under the timeline set out in the proposed bidding procedures, the company anticipates that the completion of the sale process and the closing of any resulting transactions will occur in late November or early December 2026. During the process, Character.ai expects to continue operating its business, including the platform, with minimal disruptions to service. The company filed a number of customary first day motions that, upon court approval, would enable it to continue paying wages and benefits to employees, honor commitments to platform users, and satisfy obligations to vendors and partners incurred after the filing date.

CEO Colin Adams said that over the past year the company took meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds, and that after a comprehensive review of alternatives the board determined the court-supervised sale process provides the best opportunity to maximize value for all stakeholders. He added that maintaining a safe and engaging user experience for the Character.ai community remains a top priority. The company noted that if the sale process does not result in a purchase that provides for continuation of the platform, the platform will be wound down.

Sources: Business Wire · Reuters