Acquisitions
Character.AI Files for Chapter 11 with Disney Stalking Horse Deal
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Character Technologies Inc. (Character.AI) said in an announcement late on October 12, 2026 that it has filed a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware to pursue a sale of all or substantially all of its assets, with Disney Worldwide Services, Inc. as stalking horse bidder in a $20 million agreement.
Case Filing and Court Record
The case information site maintained by Stretto, Inc., the claims and noticing agent for the case, records a petition date of October 12, 2026, when Character Technologies, Inc., doing business as Character.AI, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The case is being administered in the U.S. Bankruptcy Court for the District of Delaware in Wilmington, and the record lists the Office of the U.S. Trustee, part of the U.S. Department of Justice, among the case professionals.
The company said it intends to continue operating its platform as it conducts the sale process.
Stalking Horse Agreement With Disney
Before the filing, the company entered into an agreement with Disney Worldwide Services, Inc., an affiliate of the Walt Disney Company, under which Disney 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 through former company employees that Disney has hired. The company said those transition services will help it safely operate the platform for a limited period of time and support the sale process. The transaction is subject to higher or better offers under the Bankruptcy Code provisions governing court-supervised asset sales.
In connection with the filing, the company has also submitted a motion for court approval of bidding procedures to govern the sale process. According to the release, the proposed procedures are designed to achieve the highest or otherwise best offers for the company’s assets and seek approval to designate Disney as the stalking horse purchaser for certain of those assets.
Operations During the Sale Process
The Chapter 11 filing follows a September 18, 2026 post on the Character.AI blog in which the company said its then-chief executive, Karandeep Anand, was joining Disney in the newly created role of Senior Executive Vice President and Chief Technology Officer. The company said at the time that Anand expected to be joined by members of Character’s technical team, and that the app remained live and online.
During the sale process, the company said it expects to continue operating its business, including the Character.AI platform, with minimal disruptions to service. It has filed a number of customary first day motions that, upon court approval, will 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. The release states that if the sale process does not result in a purchase that provides for a continuation of the platform, the platform will be wound down.
“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” Chief Executive Colin Adams said in the release. Adams said that after a comprehensive review of the available alternatives, the board determined that the court-supervised sale process provides the company with the best opportunity to maximize value for all stakeholders, and that maintaining a safe and engaging user experience for the Character.AI community remains a top priority.
The company has engaged Wilson Sonsini Goodrich & Rosati, P.C. as legal adviser, Areté Partners, LLC as restructuring advisor, and Houlihan Lokey Capital, Inc. as investment banking advisor. Disney has engaged Skadden, Arps, Slate, Meagher & Flom LLP as legal advisor.
Founded in 2021, Character.AI describes itself in the release as an artificial intelligence entertainment platform that lets users connect, learn, and tell stories through modalities including Chat, Books, Series, and Comics.
Under the timeline set out in the proposed bidding procedures, the company anticipates that completion of the sale process and the closing of any resulting transactions will occur in late November or early December 2026.
