Character.ai, a leading artificial intelligence entertainment platform, has commenced a voluntary Chapter 11 proceeding in the U.S. Bankruptcy Court for the District of Delaware. The company intends to continue operating its platform while it conducts a court-supervised sale of all or substantially all of its assets. Before the filing, Character.ai reached a stalking horse agreement with Disney Worldwide Services, Inc. involving a US$20 million transaction and transition services.
Stalking Horse Agreement with Disney
Under the agreement, Disney will serve as the stalking horse bidder for a non-exclusive perpetual license of certain Character.ai intellectual property and certain company claims. In exchange, Disney will pay US$20 million and provide transition services using former Character.ai employees it has hired. These services are intended to help the company safely operate its platform for a limited period and support the sale process.
Court-Supervised Sale Process
The proposed bidding procedures are designed to achieve the highest or otherwise best offers for the company's assets and seek court approval to designate Disney as the stalking horse purchaser for certain assets. The transaction remains subject to higher or better offers under Section 363 of the Bankruptcy Code. Character.ai expects that the completion of the sale process and the closing of any resulting transactions will occur in late November or early December 2026.
Operational Continuity and First Day Motions
During the sale process, the company expects to continue operating its business, including the Character.ai platform, with minimal disruptions to service. It has filed customary first day motions that, upon court approval, will enable the company to continue paying wages and benefits, honor commitments to platform users, and satisfy post-filing obligations to vendors and partners. If the sale process does not result in a purchase that provides for a continuation of the platform, the platform will be wound down.
Leadership Commentary
Colin Adams, Chief Executive Officer of Character.ai, said that the company has taken meaningful steps over the past year to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds. He added that after a comprehensive review of available alternatives, the board determined the court-supervised sale process provides the best opportunity to maximize value for stakeholders. Adams emphasized that maintaining a safe and engaging user experience for the Character.ai community remains a top priority.
Advisors and Case Information
Character.ai 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 its legal advisor. Additional information, including court filings, is available at the case website administered by the company's claims and noticing agent, Stretto, Inc.
Platform Background
Founded in 2021, Character.ai offers an AI entertainment platform that empowers users to connect, learn, and tell stories through multimodal technologies. The platform includes modalities such as Chat, Books, Series, and Comics, allowing users to create, roleplay, and build worlds. The company describes itself as a provider of immersive experiences that spark curiosity and offer ways to explore entertainment.
The voluntary Chapter 11 filing marks a significant juncture for Character.ai as it seeks to maximize value through a structured sale process. The stalking horse agreement with Disney provides a baseline transaction while leaving room for competing bids under court supervision. Stakeholders will be watching closely to see whether the process results in a continued platform or an orderly wind down.